ECB public debt purchases by numbers

I wrote last week about the ECB’s renewed purchases of public Euro debt (in particular Spanish and Italian). Now the actual numbers are out, and the confirm what market participants signaled: The ECB was not in for a small operation.

The ECB purchased for around 22 billion Euros, thereby raising its stock of debt purchased under the Securities Markets Programme to 96 billion Euros. An unprecedented increase in the stock of almost 30 %. Today, the ECB will suck up the associated liquidity created (and will do so the next week, and the next . . . ).

From a weekly perspective, the operation appeared successful as bond yields have dropped to around 5% for both countries (although, of course, many bond yields went down last week). But is this really the objective of the ECB? “Bond yield targeting”?

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One Response to ECB public debt purchases by numbers

  1. jmg says:

    The stock of debt purchased under the Securities Markets Programme is now at 110 billion Euros. Same LINK as above.

    The ECB tries to stop a self-fulfilling confidence crisis with the “Bond yield targeting” policy. The political process in the eurozone is to slow to halt it. I think Paul DeGrauwe makes some very good points on this:
    “The European Central Bank as a lender of last resort”
    Paul De Grauwe
    18 August 2011

    “In the case of bonds, the cycle starts as the loss of confidence increases the interest rates governments must pay to rollover bonds. But the higher interest harms governments’ solvency. Since there is always an interest rate high enough to make any country insolvent, the cycle of fear and rising interest rates may lead to a self-fulfilling default.”
    (It is like in the Currency crisis models a la Obstfeld in the 1990’s)

    There are only a few choices left to stop the crisis as
    Charles Wyplosz’s very good analysis of the precarious situation makes clear.

    “They still don’t get it”
    Charles Wyplosz
    22 August 2011


    “The Eurozone crisis: how to get ahead of the markets and resolve the crisis”
    Charles Wyplosz
    Interviewed by Viv Davies
    19 August 2011

    He makes two suggestions to halt the immediate confidence crisis.
    1. The ECB should guarantee all public debts in the eurozone.
    “The ECB can simply guarantee the rollover at face value of maturing sovereign debts. This should immediately stop the sovereign debt crisis.”
    2. Eurobonds
    “The second solution is the Eurobond approach that is currently ruled out by Germany.”

    “If none of the above is quickly put in place, the ECB will have to spend huge sums to buy back public debts.”

    and his last sentences are especially noteworthy:

    “Europeans have watched the US’s conflict over the debt ceiling with awe and scorn,
    but their behaviour over the last year and half has been much worse.
    * The French want to pour money on the problem;
    * The Germans want to punish fiscal misbehaviour; and
    * The ECB does not want to bear risk.
    All of that is bringing the world to a new recession, which we will not be able
    to combat because interest rates are at the zero lower bound and governments cannot borrow much anymore. The spectre of the 1930s, including competitive devaluations as the euro breaks up, is getting dangerously relevant.”

    110 billion Euros are not the end of the story for the ECB.