ECB statement
the ECB is out with a statement saying:
- it is taking steps to mitigate the impact of possible ratings downgrades on collateral availability
- ECB to grandfather until September 2021 eligibility of marketable assets used as collateral in euro system credit operations falling below current minimum credit quality requirements
- ECB may decide further measures if needed to continue ensuring the smooth transmission of its monetary policy in all jurisdictions of the euro area
- appropriate haircuts will apply for assets that fall below the euro systems minimum credit quality requirements
- ECB to accept some junk rated debt as collateral for bank loans
The concern is that and an Italian debt downgrade may fall below the threshold set by the ECB for collateral purposes. This provisions allows for the ability by the ECB to continue to buy Italian debt (even if it is junk status) and continue the smooth pumping of liquidity into the markets/banks (subject to a "haircut" on pledging junk status liquidity)
This should ease yields in Italy.
