* Market sources say banks tap BuBa for bonds
* Demand for other countries' debt is lower
* Chart on collateral squeeze since QE: reut.rs/2hymSHD
By Francesco Canepa
FRANKFURT, Dec 15 Banks rushed to borrow German
government bonds from the Bundesbank on Thursday, market sources
told Reuters, as euro zone central banks launched a new lending
scheme aimed at supporting a funding market that underpins the
The German central bank and six others in the euro zone,
including the ECB, began accepting cash as collateral for
lending out a small portion of the 1.2 trillion euros ($1.25
trillion) worth of government bonds that they have bought to
stimulate the economy under the bloc's quantitative easing
The new scheme is designed to supply the market with quality
bonds to in turn be used as collateral for borrowing via
repurchase agreements, a key means for investment funds to
finance trading and for the European Central Bank to transmit
its own policy stimulus.
Aggressive ECB purchases under QE have deprived funds of the
most coveted collateral for repo -- high-rated and liquid debt
such as that issued by Germany -- risking a freeze in that
That led the ECB to announce the new cash-for-bonds scheme
Market sources told Reuters on Thursday that take-up for
German bonds was strong and was making commercial banks more
prepared to lend them out.
"It's more relaxed than it was five or six weeks ago," a
large market participant told Reuters. "More market participants
have entered the market and stand ready to lend out Bunds."
Under the programme, the ECB and the national banks of
Germany, Spain, France, the Netherlands, Belgium and Ireland are
making a total 50 billion euros ($52.13 billion) worth of
government bonds available for borrowing against cash, while
still accepting government bonds as collateral for the rest.
The prospect of new supply from the central banks had
already lowered the borrowing cost for 10-year Bunds, the source
The Bundesbank declined to comment while a spokeswoman for
the ECB only said the scheme "was launched successfully".
Demand for the other, less liquid sovereign bonds on offer
had been less strong, the sources said.
A spokesman for the National Bank of Belgium said it "did
not see a strong interest, as the Belgian repo market is
Yet some analysts think 50 billion euros will prove too
little to alleviate the scarcity in Germany.
"We forecast that the facility would need to be increased
beyond its current size by around June 2017 to prevent further
collateral shortage in German bonds," Peter Chatwell, an analyst
at Mizuho said in a note to clients.
($1 = 0.9592 euros)
(Reporting By Francesco Canepa, editing by John Stonestreet)