From Icap’s latest repo weekly report:
See that? That’s Italian general collateral trading more-or-less in line with the Eonia OIS curve after a good few months of haywire behavior. What’s more, German GC has lifted from extremely depressed levels too.
A country’s general colllateral rate is a good indicator of the cost of finance for institutions funding in its domestic repo market. With Italian GC trading alongside Eonia, the eurozone’s benchmark overnight interbank lending rate, that means the cost of funding in Italy is now arguably no greater than for the rest of core Europe.
European general collateral rates are essentially starting to converge around Eonia again, meaning… dah, dah, duh…. the ECB is arguably back in control.
What’s more, say Icap, Greece and Portugal are now largely being treated as if they really have been effectively quarantined. So much so that even ongoing setbacks in Greek negotiations are failing to rumble Italian GC trends.
With things so honky dory in repo land again, a display of the new found stability, meanwhile, is being reflected in an almost perfectly flat Eonia OIS curve, say Icap — a function of the ECB’s three-year tenders and the Fed’s extension of its “exceptionally low” official rate guidance:
All we need now, say Icap, are for German repo volumes to pick up again, a sign that the hoarding of top quality collateral has finally stopped.