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Short-End Rates Climb Higher as ECB Raises Remuneration Ceiling

  • ECB announce they are to lower rates available to government deposits to incentive withdrawals from ECB deposits as a previous exemption policy rolls off at the end of April.
  • ECB step there is a small part of broader monetary policy, but is impactful for the repo market specifically.
  • These steps follow some fragility in the repo market evident halfway through 2022 - and is prompting some market reaction here: 2y German yields spiking on the move and hitting late highs at 2.6704%
  • Context here is that the ECB remuneration cap was set for a possible return - although some among the sell-side had seen the ECB possibly extending the 0% cap that was introduced in September last year. That hasn't come to fruition.
  • For markets, this means collateral scarcity could become an issue once more as treasuries are weaned off ECB deposits - although the ECB's move here is a signal that bank are confident in the improved conditions for money markets.
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