ECB Says No to CEE Bonds as Collateral

The ECB may have agreed in principle to purchase covered bonds, but it has no appetite to accept local currency sovereign bonds from eastern and central Europe as collateral. Reuters reports that the ECB has formally rejected the request of “several” central European central banks to accept non-eurozone local currency bonds for collateral. The Deputy Governor Hungary’s central bank was quoted inidcating that the ECB notified them by letter today that the ECB “does not wish to expand the list of instruments accepted as collateral”.

There does not seem to be a significant market reaction, perhaps it part because it confirms the status quo and does not represent a change. In fact, Poland’s 10-year bond yield is 5 bp lower today, according to Bloomberg, matching the decline in yield of the German 10-year bund. Czech and Hungarian bonds are lagging with yields unchanged to a 1 bp lower. Ironically, today Spain, Greece, Ireland and Portuguese bonds are the main under-performers, with yields actually rising 1-5 bp.

Central Europe currencies are narrowly mixed today. The forint is the under-performer, losing a little less than 1% against the dollar. The zloty is off by 0.39%. The koruna is up about as much as the zloty is down. By comparison as this is written the euro is off 0.12% (~$1.3582).