At the same time, the APP is said to have withdrawn increasing volumes of high-quality liquid collateral from the market, exacerbating pricing tensions, especially for special bonds. 1/5  BIS central bankers' speeches  While monetary policy may, in some circumstances, exacerbate repo market tensions, I believe it to be far from the only factor at play today, or indeed the most important one. The situation in the repo market today in fact reflects a confluence of longer-term trends that have affected both the supply and demand for good collateral. I will review some of these trends in a moment. Before doing so, I would like to recall an important point. Our mandate is clear: to deliver price stability. This is our primary objective and the sole orientation for our policy. What we aim to do is to act in a way that is necessary, proportionate and that limits side-effects. This is why we have designed our programmes in such a way as to deliver our objective without creating excessive distortions in market functioning and price discovery. And it is also why we have taken measures to mitigate some effects of our measures on repo markets. These measure, too, are governed by the principle that they must be necessary and proportionate, as well as not being in conflict with our price stability mandate.
Yves Mersch: Ructions in the repo market - monetary easing or regulatory squeezing? Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the GFF (Deutsche Börse Group Global Funding and Financing) summit, Luxembourg, 26 January 2017. * * *  Introduction There is no doubt that European repo markets today are operating in unprecedented territory. In the past year we have faced the extraordinary situation of collateralised transactions taking place well below the ECB’s deposit rate, and not just for the highest-rated issuers. There are increasing signs that this is indicative of market stress. Though market depth remains relatively stable and the bid offer spreads are not a major liquidity restriction, the decreased average ticket size seems reflective of collateral scarcity in some market segments. If one looks at the distribution of trades taking place by rates towards the end of last year, while German collateral usually traded at around –70 bps, it traded at –4.88% at year-end, reflecting increased demand for “special” German bonds (while overall turnover declined about 50%). In a “special” the repo contract specifies a particular bond to be exchanged for cash, rather than the specification of a broad collateral class such as ‘German government bond’. As a result, specials tend to trade at lower interest rates. The volume of trades conducted at special rates also increased in other markets, pushing the distribution of rates lower. Average French collateral rates have moved from –45 bps before summer 2016 to below –60 bps before Christmas.