ECB Under Pressure To Unlock Bonds

The European Central Bank is under growing pressure from bankers to lend more of its stash of German government bonds to avert a market squeeze that would undo some of its own stimulus efforts.

As the safest debt in the region, Germany’s sovereign bonds are the lifeblood of European financial markets and the most coveted collateral for guaranteeing trades at clearing houses.

But there aren’t enough of them to satisfy demand in the 8.3-trillion-euro ($9.3 trillion) market for repurchase agreements, or repos, where investors swap cash for bonds.

This is because the ECB – mostly via Germany’s Bundesbank – has hoovered up nearly a third of German public debt in an effort to support the euro zone economy since 2015 and, with renewed impetus, during the COVID-19 pandemic.