Bloomberg News

ECB Settles First Government Bond Purchases in a Month

March 12, 2012

The European Central Bank settled government bond purchases for the first time in four weeks.

The Frankfurt-based ECB said it settled 27 million euros ($35 million) of purchases, as part of the Securities Markets Program, in the week ended March 9 after three weeks of inactivity. The ECB bought short-dated Portuguese securities on Feb. 29, according to two people with knowledge of the transactions. Purchases made mid-week or later sometimes don’t settle until the following week.

The purchases have dwindled since the ECB started offering banks unlimited three-year loans in December, injecting more than 1 trillion euros in the system. That has helped drive a bond-market rally and reduced the need for the central bank to intervene. ECB council member Ewald Nowotny has said the bond- purchase program “is more or less on hold.”

“The SMP program has now probably run its course,” Peter Vanden Houte, an economist at ING Belgium SA in Brussels, said in a note to investors. “Some symbolic purchases is the best that can be expected in the coming months.”

Portugal’s implied borrowing costs have still increased as investors fret about whether it will follow Greece in having to restructure its debt. While the nation’s 10-year bond yield has dropped from a euro-era record of 18.29 percent on Jan. 31, at 13.12 percent it is still higher than its 2011 average of 10.17 percent. The two-year rate of 11.2 percent has more than doubled in the past year.

The ECB says its bond purchases are aimed solely at ensuring its interest rates are transmitted on financial markets. The program has nevertheless split the central bank’s policy makers, some of whom say it blurs the line between monetary and fiscal policy.

The ECB said 1.5 billion euros of purchased bonds matured last week. It will take seven-day term deposits tomorrow to absorb the 218 billion euros of liquidity created since the program started in May 2010, a practice it employs to ensure the purchases don’t fuel inflation.

     Week      Purchases Settled (bln)  Total (bln)
     1              16.50*              16.5
     2              10.00*              26.5
     3               8.50*              35.0
     4               5.50*              40.5
     5               6.50*              47.0
     6               4.00*              51.0
     7               4.00*              55.0
     8               4.00*              59.0
     9               1.00*              60.0
     10              0.302              60.0
     11              0.176              60.5
     12              0.081              60.5
     13              0.009              60.5
     14              0.010              60.5
     15              0.338              60.5
     16              0.142              61.0
     17              0.173              61.0
     18              0.237              61.0
     19              0.323              61.5
     20              0.134              61.5
     21              1.384              63.5
     22              0.009              63.5
     23                  0              63.5
     24                  0              63.5
     25                  0              63.5
     26              0.711              64.0
     27              1.070              65.0
     28              0.713              66.0
     29              1.348              67.0
     30              1.965              69.0
     31              2.667              72.0
     32              0.603              72.5
     33              1.121              73.5
     34              0.164              73.5
     35              0.113              74.0
     36              2.313              76.5
     37              0.146              76.5
     38                  0              76.5
     39                  0              76.5
     40                  0              76.5
     41              0.711              77.0
     42              0.369              77.5
     43                  0              77.5
     44                  0              77.5
     45                  0              77.5
     46              0.432              76.5
     47                  0              77.0
     48                  0              77.0
     49                  0              76.0
     50                  0              76.0
     51                  0              76.0
     52                  0              76.0
     53                  0              76.0
     54                  0              75.0
     55                  0              75.0
     56                  0              75.0
     57                  0              75.0
     58                  0              74.0
     59                  0              74.0
     60                  0              74.0
     61                  0              74.0
     62                  0              74.0
     63                  0              74.0
     64                  0              74.0
     65                  0              74.0
     66                 22              96.0
     67                 14.3           110.5
     68                  6.65          115.5
     69                 13.3           129.0
     70                 13.96          143.0
     71                  9.79          152.5
     72                  3.95          156.5
     73                  3.80          160.5
     74                  2.31          163.0
     75                  2.24          165.0
     76                  4.49          169.5
     77                  4.00          173.5
     78                  9.52          183.0
     79                  4.48          187.0
     80                  7.99          194.5
     81                  8.58          203.5
     82                  3.66          207.0
     83                  0.64          207.5
     84                  3.36          211.0
     85                  0.02          211.0
     86                  0.46          211.5
     87                  1.1           213.0
     88                  3.77          217.0
     89                  2.24          219.0
     90                  0.06          219.0
     91                  0.12          219.0
     92                  0.06          219.5
     93                  0             219.5
     94                  0             219.5
     95                  0             219.5
     96                  0.03          218.0


* = calculated by Bloomberg News

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

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


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