Today’s Comment is dedicated to a seemingly peculiar development in the Eurozone money market since the start of the year. On the one hand, we are experiencing a significant tightening of the unsecured bank-centered money market. On the other hand, the secured market has eased markedly. We call it easing because secured rates (repos and security lending) and bill yields remain very low in the case of latter while they are falling in case of the former. In fact, developments in the Treasury bill and repo/securities lending market – let’s call them the collateral market – can best be described as a squeeze. In today’s
Comment we will discuss the drivers of the squeeze in the collateral market. But before we turn to the collateral situation, a short detour to pricing in the unsecured market.

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