ECB Buys Irish Bonds as Spread Over Bunds Widens to Record, Traders Say
The European Central Bank bought Irish government bonds today, according to three traders with knowledge of the transactions.
The ECB purchased debt maturing in 2019 and 2025, one of the traders said under condition of anonymity because the deals are confidential. A central bank spokesman declined to comment when contacted by telephone in Frankfurt.
Irish 10-year bonds slid for a sixth day, driving the extra yield investors demand to hold the debt instead of German bunds to a record, as Finance Minister Brian Lenihan tries to build a budget for next year that convinces investors he can get the country’s finances in order. The premium on the debt has doubled since August and is now wider than the spread Greek debt had four days before the Mediterranean nation sought a European Union-led bailout in April.
The difference in yield, or spread, for Irish 10-year debt over bunds widened 18 basis points to 480 basis points at 3:30 p.m. in London.
The ECB’s bond purchases differ from so-called quantitative easing policies pursued by the Federal Reserve and 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 move is aimed primarily at reducing volatility in the market.
The ECB began the program on May 10 to stabilize markets rocked by the region’s sovereign-debt crisis. The purchases were part of a European Union-led push to rescue the euro, which fell to a four-year low on June 7 after Greece’s near default raised concern that some nations in the region would struggle to finance their budget deficits.
To contact the reporter on this story: 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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