Treasury Collateral Shortage Crosses The Atlantic, Makes European Landfall

zerohedge.com / by Tyler Durden on 03/26/2015 20:30

In “How The ECB Is Distorting Euro Money Markets” we summarized Barclays take on the effects of ECB QE as follows: “short-end core paper will trade below -0.20%, extreme supply/demand imbalances will cause general collateral rates to trade through the depo rate, money market fund yields will turn decisively negative testing investor patience, and central banks had better make good on promises to make some of their inventory available for lending or risk impairing the functioning of the repo market (never a good idea).” A little over two weeks into the PSPP and sure enough, signs are already beginning to show that the ECB is effectively breaking the market. Last week, we got this via Reuters:

The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB’s asset-purchase scheme, which analysts say could clog up Europe’s financial system.

Uncertainty over how the European Central Bank will counter the scarcity of top-rated debt could further shrink repo markets — a source of funding that is essential to the smooth running of bond markets…

One broker said every German government bond eligible for ECB purchase was now trading ‘special’,meaning exceptional demand had made it more expensive to borrow for three months than general collateral.

Then today, this from Mizuho’s Peter Chatwell via Bloomberg:

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