ECB to lend more of its bonds to ease market tightening

The European Central Bank has increased the amount of bonds it can lend to 250 billion euros to ease a market squeeze that is likely to worsen next year, Isabel Schnabel, a member of the ECB’s board, said on Thursday.

With the ECB holding trillions of euros in government debt, market participants often struggle to find high-rated bonds, such as those in Germany, that they can borrow and use as collateral in financial transactions.

This has prompted the ECB to increase the amount of bonds it makes available for lending to alleviate this shortage, which is particularly acute towards the end of the year, when commercial banks close.

“As of today, the Governing Council has increased the threshold for lending Eurosystem bonds against cash collateral from €150 billion to €250 billion,” Schnabel said on Twitter. “This is a precautionary measure to alleviate the collateral shortage and sustain market functioning until the end of the year.”

Some analysts expect the shortage of government bonds to ease next year as the ECB begins to shrink the volume of bonds to clean up excess liquidity and fight runaway inflation in the euro zone.

Source: CNN Brasil

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