Collateral shifts in the eurozone

We all know the story in the public repo market. The European Central Bank has provided three years worth of funding against the widest range of collateral it has ever dared to accept, and is preparing to do it all again in February. We know the type of collateral it accepted, and how much funding it provided.

But what, pray tell, is the story in the private interbank repo market?

According to the European Repo Council, which has just released its bi-annual repo market survey, there have been a number of interesting developments.

Among the most intriguing, according to Richard Comotto, the report’s author, is the shift in the type of collateral being used in the market, specifically the decrease of the use of both German and Italian bonds.

As the ERC’s press release notes :

Heightened risk-aversion among investors was evident in changes in the collateral composition of the market. Overall, the share of government bonds within the pool of EU originated collateral rebounded in this most recent survey to 79.1% of the market from 74.3% in the previous survey.

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