ECB Action Reduced Systemic Collapse Risk in 2012: ESMA

Action by the European Central Bank to ease funding for governments helped reduce so-called systemic risk last year, the European Union’s top markets regulator said.

The ECB’s pledge to buy up sovereign bonds in the secondary market, which began in August, “reduced uncertainty among market participants,” the Paris-based European Securities and Markets Authority said in an e-mailed statement.

The agency said investors remain “very sensitive to any new information on distressed European markets’ sovereign debt.”

“ESMA’s risk analysis points to important first signs of easing in EU financial markets, but risks remain high and regulators, market participants and investors should remain vigilant,” Steven Maijoor, ESMA’s chairman, said in the statement.

Yields on Spanish debt have declined from a high of 7.75 percent on July 25 to 5.19 percent after the ECB announced its bond-buying program, called Outright Monetary Transactions. The plan, which would cover notes with maturities of between one year and three years, enticed investors back to higher-yielding assets that they abandoned during the Europe’s debt crisis.

ESMA also said that the demand for high-rated collateral will grow faster than the supply over the next two years, making it “comparatively scarcer,” the watchdog said.

The amount of available collateral rated BBB- or higher is estimated to increase by 800 billion euros ($1.07 trillion) by 2014, while demand will grow by 2.4 trillion euros as stricter rules on derivatives and bank liquidity take effect, ESMA said in its report.

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