The European Central Bank bought Irish and Portuguese government bonds today, according to at least four traders with knowledge of the transactions.
The ECB also purchased Greek debt, said another person, who asked not to be identified because the deals are confidential. An ECB spokesman in Frankfurt declined to comment.
The central bank also bought Irish and Portuguese bonds yesterday, according to traders. ECB President Jean-Claude Trichet said then that the bond-buying program was ongoing.
“The timing for these reported bond purchases is perfect,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The ECB is buying in an extremely illiquid year-end market. Its purchases are always going to move the market in a big way. It remains to be seen what the ECB will do into the new year when the market is liquid again.”
The extra yield investors demand to hold 10-year Portuguese bonds instead of benchmark German bunds narrowed to less than 3 percentage points, or 300 basis points, for the first time since Aug. 24, according to data compiled by Bloomberg.
Irish 10-year bonds rose, pushing the 10-year yield down 37 basis points to 8.38 percent as of 3:09 p.m. in London. The Portuguese yield slid 20 basis points to 6.11 percent, with the yield on the 10-year Greek security falling 12 basis points to 11.72 percent.
The ECB’s bond-buying program differs from so-called quantitative easing policies pursued by the Federal Reserve and the 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 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.
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