ECB Reduces Securities-Lending Fee on QE Bonds to 30 Bps

Updated on
  • Lending fee previously 40 bps; covered bonds also available
  • Monthly bond purchases increased to 80 billion euros in April

The European Central Bank Monday reduced the fee that banks pay to borrow securities from the institution that were purchased under its quantitative-easing program.

Eligible counterparties now pay a “fixed minimum fee of 30 basis points, or a fee based on prevailing market rates, whichever is the higher,” the ECB said on its website. The change in the fee, previously fixed at 40 basis points above general collateral, comes into effect April 4. The term will be open repurchase agreements, or repo, instead of a fixed one-week term that could be rolled over. The ECB’s holdings of covered bonds will also be made available in the lending facility. A basis point is 0.01 percentage point.

It’s a “signal that the ECB is looking at the liquidity dynamics of various asset classes,” said Subhrajit Banerjee, a fixed-income strategist at HSBC Holdings Plc in London.

The ECB increased its monthly bond purchases to 80 billion euros ($91 billion) from 60 billion euros this month. The securities lending program is targeted at primary dealers and other market makers to ensure bond-market liquidity, particularly within the repo market, which is typically used for short-term funding with debt provided as collateral for loans. 

Banks can borrow sovereign, agency and covered bonds from the ECB. National central banks, which implement the majority of the quantitative-easing program’s purchases, have their own lending facilities in place.

(Updates to add breakdown of lending programs in fifth paragraph. An earlier version of this story was corrected to remove reference to supranational bonds in the quote in third paragraph.)
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