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ECB to lend out more of its bonds to ease market squeeze

Randy Mancini 6 November 10, 2022

FRANKFURT (Reuters) – The European Central Bank has raised the amount of bonds it can lend against cash to 250 billion euros to ease a market squeeze that tends to get worse towards the year of the year, ECB board member Isabel Schnabel said on Thursday.

With the ECB sitting on trillions of euros of government debt, market participants often struggle to find high-rated bonds, such as Germany’s, that they can borrow and use as collateral in financial trades.

This has led the ECB to increase the amount of bonds it makes available for lending to ease that scarcity, which is particularly acute at year-end when commercial banks shut up shop.

“The Governing Council raised as of today the limit for the Eurosystem’s securities lending against cash collateral from 150 billion euros to 250 billion euros,” Schnabel said in a tweet. “This is a precautionary measure to ease collateral scarcity and support market functioning around the year-end.”

Some analysts expect the dearth of government bonds to ease next year when the ECB starts shrinking its pile of bonds to mop up excess liquidity and fight runaway inflation in the euro zone.

(Reporting by Francesco Canepa; Editing by Mark Heinrich)