Bloomberg News

ECB Said to Buy Bonds of Portugal, Ireland to Cap Decline

August 04, 2011

(Updates with Trichet comment in third paragraph)

Aug. 4 (Bloomberg) -- The European Central Bank bought Irish and Portuguese government bonds, according to three people with knowledge of the transactions.

The ECB wasn’t seen buying securities from any other euro- region nations, said the people, under condition of anonymity because the trades are confidential. The central bank’s press office in Frankfurt didn’t immediately return a call seeking comment. ECB President Jean-Claude Trichet signaled that the central bank bought government bonds today to fight tensions in euro region debt markets. The ECB was not unanimous in voting for a resumption of bond buying, he said.

“I never said the SMP had been interrupted and you will see what we do,” Trichet said at a press conference in Frankfurt, referring to the ECB’s Securities Market Program. “I wouldn’t be surprised that before the end of this teleconference you would see something on the market.”

The yield on the Irish 10-year bond fell 14 basis points to 10.50 percent as of 2:34 p.m. in London. The Portuguese two-year yield dropped 57 basis points to 14.74 percent.

German two-year yield fell 10 basis points to 0.94 percent, while 10-year yields were two basis points lower at 2.38 percent.

The ECB’s bond-buying program differs from so-called quantitative easing policies pursued by the Federal Reserve and the Bank of England because the central bank mops up the liquidity created by the purchases, meaning the net effect on the money supply is neutral. The ECB began the program on May 10 last year to stabilize markets rocked by the region’s sovereign- debt crisis.

--With assistance from Paul Dobson in London. Editors: Matthew Brown, Keith Campbell

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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