Bloomberg News

ECB Says It Spent More on Bonds Last Week as Italy Yields Soared

November 07, 2011

Nov. 7 (Bloomberg) -- The European Central Bank bought more government bonds last week as Italian yields soared.

The Frankfurt-based ECB said it settled 9.5 billion euros ($13.1 billion) of bond purchases in the week through Nov. 4, up from 4 billion euros the previous week. The central bank will take seven-day term deposits tomorrow to absorb the 183 billion euros of liquidity created since its bond program started on May 10 last year, a practice it employs to ensure the purchases don’t fuel inflation.

Italy’s 10-year bond yield, which surged above 6 percent last week, climbed to a euro-era record of 6.68 percent today amid concern the region’s third-largest economy is struggling to manage its debt load as growth falters. European Central Bank President Mario Draghi said on Nov. 3 that the bank’s purchases are temporary and limited, and can’t sustainably lower borrowing costs for governments.

The ECB was forced to start buying Italian and Spanish government bonds in August after Europe’s debt crisis spread. It says the purchases are aimed solely at ensuring transmission of its interest rates on financial markets.

Juergen Stark on Sept. 9 announced he will resign from the ECB’s Executive Board in protest at the purchases and council member Jens Weidmann has said the bank should reduce the risks on its balance sheet rather than increase them.

--Editors: Matthew Brockett

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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