ECB Survey Reports Slight Easing of Credit Terms Across Euro-Denominated Markets

Credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets eased slightly across all counterparty types between June and August 2026, according to a survey released by the European Central Bank (ECB) on 7 October 2026. The findings mark the fourth consecutive quarter of overall easing, occurring against a backdrop of geopolitical uncertainty in the Middle East and energy price volatility.

The September 2026 Survey on Credit Terms and Conditions in Euro-Denominated Securities Financing and OTC Derivatives Markets (SESFOD), which gathered responses from 26 large banks, found that the easing was primarily driven by price terms. Non-price terms eased slightly for banks and dealers, tightened slightly for hedge funds, and remained unchanged for other counterparty groups. Some respondents pointed to market liquidity, institutional competition, and counterparty financial strength as factors driving the easier price terms. Survey participants anticipated further slight easing across all counterparty types in the subsequent three months, while hedge funds' use of leverage grew slightly.

In securities financing transactions, the survey indicated an increase in demand for funding secured against most collateral types, led by equities. Financing rates and spreads rose across all collateral types for most-favoured clients, whereas increases for average clients were restricted to domestic government bonds, other government bonds, and convertible securities. Concurrently, haircuts decreased for most bond collateral types and asset-backed securities. Maximum amounts and maturities of funding increased for some collateral categories, though market liquidity and functioning experienced slight deterioration for equities and various corporate bond types.

For non-centrally cleared OTC derivatives, initial margin requirements decreased slightly for foreign exchange, interest rate, equity, and several credit derivative types. Maximum exposures and trade maturities held broadly steady. While liquidity and trading conditions worsened for equity and commodity derivatives, they showed slight improvement for credit derivatives referencing sovereigns. The ECB also noted that the volume, duration, and persistence of valuation disputes increased for several derivative categories, most notably credit derivatives.

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