ECB cuts sovereign bond spend to €14.3bn as pressure subsides

BOND YIELDS:THE EUROPEAN Central Bank scaled back spending on sovereign bonds to €14.3 billion last week, from a record €22 billion a week earlier as yields on Italian and Spanish debt fell to sustainable levels.

The Frankfurt-based bank began buying Italian and Spanish securities on August 8th in an attempt to prevent the euro zone debt crisis from engulfing the two countries. The bank’s intervention has eased tensions in the sovereign debt market, with yields on 10-year bonds in Italy and Spain dropping to below 5 per cent.

The central bank does not break down its purchases. But traders say it has been concentrating its efforts on Italian bonds and that it is continuing to buy.

Justin Doyle, head of inter-bank foreign exchange at Investec in Dublin, said the €14.3 billion spent last week is “still a big enough number”. The fact that the ECB curbed its spending somewhat was “less negative” than if it had ramped up its bond-buying and exceeded €22 billion, he said.

The ECB’s latest purchases, which span the period August 11th to 17th, pushed the programme’s spending past the €100 billion mark to €110.5 billion.

The ECB agreed to reactivate its bond-buying programme which had been dormant for about five months, after promises from European governments that the European Financial Stability Facility (EFSF) would take over this task within months.

However, Ewald Nowotny, a member of the ECB’s governing council, said yesterday he was worried that political jousting in member states could end up delaying beyond October parliamentary approvals of the July 21st deal.

Approval at national level is needed to empower the EFSF to buy bonds.