LONDON Feb 22 The European Central Bank should
reassure investors it is seeking to ease a squeeze in short-term
funding markets that has helped push the price of bonds to
unprecedented levels this week, a top industry lobbyist told
Reuters on Wednesday.
Godfried de Vidts of the International Capital Market
Association held talks last week with the central bank over its
asset-purchase scheme which he said is contributing to an acute
shortage of bonds for repos, or repurchase agreements.
Banks and big business rely on repo markets to raise cash
against collateral but a recent surge in funding costs threatens
the functioning of this market often viewed as the plumbing of
the financial system.
"One good sign would be if we get a statement from the ECB
saying yes, we've heard you and we're looking into this," said
de Vidts, who chairs ICMA's European Repo and Collateral
"It won't take the tensions away but it will give the market
a bit of comfort that it is looking at the issues. There is a
lot of uncertainty and that would help scale things down a bit."
The ECB introduced a bonds-for-cash scheme in December to
try to reduce the stress in repo markets, and minutes of its
January meeting showed policymakers have discussed further
But De Vidts wants a public statement to temper investor
angst. The central bank next meets on March 9.
A scarcity of German and French bonds at the turn of the
year saw investors pay record rates to borrow that paper, used
as collateral for guaranteeing trading positions, and avoid the
risk of being put into default.
Analysts say this is partly driving demand for short-dated
German bonds with yields -- which move inversely to prices --
striking new record lows on Wednesday.
De Vidts said the fact investors wanted to buy these
high-quality bonds as a hedge against expectations of a further
squeeze in repo markets as the end of the first quarter
approaches was also a factor.
"We expect March to be horrible and June even worse. Then by
the summer time we should have enough minds coming together to
say we have to make changes," he said.
(Reporting by Dhara Ranasinghe, editing by Nigel Stephenson)