MNI INTERVIEW: EZ Collateral Issues Easing - Belgian DMO
Collateral squeeze easing, helped by ECB measures, the director at Belgium's debt manager tells MNI.
There has been an obvious easing in the collateral drought across the eurozone, but conditions are still some way from normal, a leading European debt manager told MNI Wednesday.
Since the height of the collateral squeeze in late summer, action by the European Central Bank and others has helped, Maric Post, director of Treasury and Capital Markets at the Belgian Debt Agency said.
It seems we are past the peak seen just before the European Central Bank announced it would temporarily remove the 0% interest rate ceiling on remuneration of government deposits, Post said. Each subsequent move by the ECB and other agencies -- Belgium itself had eased its repo requirements for primary dealers – has been a step towards normalisation, he added. (See MNI INTERVIEW: ECB Bill Sales Would Ease Collateral Drought)
Pricing of general collateral in the repo market is now more in line with historical norms.
“Repo was trading 50 basis points below ESTR at the height of the collateral squeeze, but that has now fallen to -10. Belgian rates were at -70 bps, but now trade around -20, which is perhaps only 5bps rich on historical levels,” Post noted.
Much of the stress seen in the wake of what Post called the “English episode’, referring to the Gilt market meltdown in late September, has now dissipated.
Post also played down the recent market discrepancy that saw Belgian bond yields trade below those of the EU bonds linked to the NextGenEU programme, saying it had much to do with pricing off swaps.
“EU debt is still largely priced off of swaps, which has weighed on them in recent months. Belgium has benefitted as we are asset swap rich, which has helped our pricing,” he said. (See MNI: NextGenEU Auctions Seen Aiding Liquidity, Yields)