Euro central banks can lend out more bonds to aid repo market, ECB's Constancio says
Record ID:
77564
Euro central banks can lend out more bonds to aid repo market, ECB's Constancio says
- Title: Euro central banks can lend out more bonds to aid repo market, ECB's Constancio says
- Date: 24th November 2016
- Summary: FRANKFURT, GERMANY (NOVEMBER 24, 2016) (REUTERS) VARIOUS EXTERIORS OF EUROPEAN CENTRAL BANK (ECB) HEADQUARTERS IN FRANKFURT VARIOUS OF ECB VICE PRESIDENT VITOR CONSTANCIO ARRIVING FOR INTERVIEW (SOUNDBITE) (English) ECB VICE PRESIDENT, VITOR CONSTANCIO, SAYING: "We don't have to do much. In our purchase programme we have also committed to that all natural central banks that are intervening in the context of that programme should also offer securities lending to help the liquidity in the repo markets and so we hope and we provide our guidance, that all national central banks should do that in relation to their own government bonds. So indeed the Bundesbank has been increasing the securities lending programme which goes in that direction, precisely, which we see as needed to complement our programme of purchases." 20 EURO BILLS ON DISPLAY 200 AND 500 EURO BILLS ON DISPLAY (SOUNDBITE) (English) ECB VICE PRESIDENT, VITOR CONSTANCIO, SAYING: "Well, there is of course a price. If you are talking about bonds, well they are, there is a big demand for such safer assets so it's normal then there is a premium to be paid, of course." REPORTERS LISTENING (SOUNDBITE) (English) ECB VICE PRESIDENT, VITOR CONSTANCIO, SAYING (on ITALY): "Well, I don't see that (break-up) risk still reflected in market prices. Indeed, it's true that the yields of Italian government bonds have gone up. They have gone up everywhere, a little bit more in Italy as a result of concerns about the result of the referendum, it's true but at levels that are still very low. If you think about past episodes where other risks were indeed present, you would then see that the levels were much higher. So I don't think there is such concern." WIDE OF REPORTER AND CONSTANCIO 10 EURO BILLS ON DISPLAY DETAIL OF DRAWING (SOUNDBITE) (English) ECB VICE PRESIDENT, VITOR CONSTANCIO, SAYING: "The spirit of the purchase programme is to bring down the cost of capital in the euro area. That's what we are doing and we have achieved, that indeed the price of yields of bonds have gone down and the money that was injected as a result of the programme was also used in equity markets and equity markets went up. All these spillovers and portfolio changes have happened throughout the euro area and the intention of the programme was not to shift money from one country to another. That was not the purpose of the programme. So what happened is absolutely what we were aiming at." PAN FROM EXHIBITION TO REPORTER TALKING TO CONSTANCIO
- Embargoed: 9th December 2016 13:50
- Keywords: ECB policy vice president Constancio bonds Italy
- Location: FRANKFURT, GERMANY
- City: FRANKFURT, GERMANY
- Country: Germany
- Topics: European Union,Government/Politics
- Reuters ID: LVA00159SZIJ1
- Aspect Ratio: 16:9
- Story Text: Euro zone central banks can lend out more of the bonds they have bought as part of the European Central Bank's stimulus programme to support the market for short-term funding, European Central Bank Vice President Vitor Constancio told Reuters on Thursday (November 24).
The ECB's purchases of more than a trillion euros ($1.06 trillion) of euro zone government bonds has made it hard for investment funds to source such high-quality collateral to use for borrowing in repurchase-agreements, known as repos.
Constancio's comments confirm that the ECB is keen to avoid the freezing of the 5.5 trillion euros repo market as exclusively reported by Reuters on Wednesday. The repo market is key for transmitting ECB stimulus to the economy and is used by investment funds to finance trading.
"All national central banks...should also offer securities lending to help the liquidity in the repo markets and so we hope and we provide our guidance (for that)," Constancio said.
A freeze in repo activity risks undoing some of the ECB's stimulus by hampering lending between financial companies and leaving bond markets vulnerable to sharp selloffs.
Sources have told Reuters the ECB is looking for ways to lend out more of its bonds and the issue would be discussed at the ECB's Dec. 8 meeting, when rate setters will also decide on whether to continue purchases beyond March.
Possible changes include reducing charges for firms which fail to return on time the bonds they have borrowed, accepting new types of collateral and extending the duration of loans.
Any decision on bond lending might not be finalised in December and will depend on what other changes the ECB makes to its asset-purchase programme. - Copyright Holder: REUTERS
- Copyright Notice: (c) Copyright Thomson Reuters 2016. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: None