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Central banks could do more to stabilize repo markets: BIS report
April 12, 2017 / 10:05 AM / 8 months ago

Central banks could do more to stabilize repo markets: BIS report

LONDON (Reuters) - Central banks could help reduce volatility in short-term funding markets used by banks and big business by lending out more securities used as collateral, a group of policymakers from around the world said on Wednesday.

A committee of the Bank for International Settlements also said in a study on how repurchase agreements, or repos, function, that debt management agencies could sell more securities that were becoming scarce.

The $9 trillion global repo market, which allows borrowers to pawn securities for short-term loans, is seen as essential for the functioning of global financial markets.

However, the entire sector is struggling to adjust to the after effects of a series of financial crises and the regulatory environment that has followed them, the committee said.

Some high-quality euro zone government bonds -- typically used as collateral in repo markets -- have deeply negative yields mainly because of scarce supply created by the European Central Bank’s asset-purchase program.

The ECB has a scheme to lend bonds it has purchases but that has done little to prevent short-dated German government bond yields hitting record lows in recent months. DE2YT=TWEB

“Where such facilities already exist, central banks might consider ways to increase their efficacy by reducing barriers to access,” the committee said in the study, released on Wednesday.

Editing by Jeremy Gaunt

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