ECB Steps Up Bond Purchases to Fight Market Tensions

The European Central Bank increased its bond purchases last week after President Jean-Claude Trichet pledged to fight “acute” financial market tensions.

The Frankfurt-based ECB said it settled 1.965 billion euros ($2.61 billion) of purchases, the most in 22 weeks. Most transactions between Dec. 1 and Dec. 3 have not yet settled, the ECB said in a statement. It will take seven-day term deposits tomorrow to neutralize 69 billion euros of liquidity created by bond purchases since the program started on May 10.

The ECB last week delayed its withdrawal of emergency liquidity measures and said its asset-purchase program was “ongoing” as concerns grew that Europe’s sovereign debt crisis may spread. As Trichet briefed journalists about the decision on Dec. 2, ECB staff embarked upon a new wave of bond purchases, triggering a surge in Irish and Portuguese paper.

Today’s statement “puts some measurable figures behind the rhetoric from the ECB last week,” said Nick Matthews, senior European economist at Royal Bank of Scotland Group Plc in London. “The program picked up and there’s more to come.”

The central bank bought Irish and Portuguese government bonds today, according to three traders with knowledge of the transactions who declined to be identified because the deals are confidential. An ECB spokeswoman declined to comment.

The ECB only publishes the amount of purchases settled each week, not details of which bonds it has bought. The program aims to smooth the functioning of some euro-region bond markets to improve monetary-policy transmission. Bundesbank President Axel Weber has argued that there’s no evidence the purchases achieve this. He said on Nov. 19 the program should be stopped “sooner than later.”

Ireland last month became the second euro member to be bailed out by the European Union and the International Monetary Fund.

     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

*calculated by Bloomberg News

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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