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Bond drought may get worse before it gets better: ECB's Mersch

Reuters

FRANKFURT (Reuters) - The European Central Bank's massive purchases of government debt are likely to continue straining the repo market, where investment funds use those bonds as collateral for borrowing, until the economy recovers, an ECB director said on Thursday

"To the extent that non-banks seek to maintain their holdings of government securities, this is likely to cause additional pressure on the repo market," Yves Mersch said in a speech.

"But with the continued economic recovery market stress should fade and conditions for unsecured lending might re-gain some attractiveness," he added.

(Reporting By Francesco Canepa; Editing by Balazs Koranyi)

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