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Fixed Income Update – Beware of Collateral Crunch

Published date: 5 Jan 2012 | Read full report | Disclaimer
European Central Bank

The continuous downgrade of strong rated issuers, and particularly sovereigns, is making high quality collateral a scarce resource.

The result is an increasing risk of a ‘Collateral Crunch’.

My colleague, Ulrik Silberg, has analysed the situation.

In short he concludes:

  • Insufficient quality collateral and funding turning secured is causing risk of a collateral crunch
  • Need for high quality collateral is an important factor for current pricing of safe-haven assets
  • If the collateral squeeze worsens, expect rich pricing of e.g. AAA bonds to get even richer
The full analysis is linked below.
 
Happy Reading,
Niels From
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