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Trouble in European repo land?

European markets are worried about the state of the eurozone repurchase market, “which provides the flow of money that is the lifeblood of the financial system,” writes the Financial Times in a January 10, 2011, story.

Banks are relying heavily on the European Central Bank for funding, which some see as a sign financial institutions are reluctant to lend to each other on the repo market because they are worried about the collateral.

From the article:

Last week reports that the Swiss National Bank was no longer accepting Portuguese government bonds as collateral for loans sent bond yields higher because of fears that the repurchase market for bonds, the plumbing of the global financial system, was coming under strain….

Although the SNB issued a clarification saying it had never accepted Portuguese bonds as collateral, markets remain nervous over the state of the repo market, which provides the flow of money that is the lifeblood of the financial system.
 

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