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ECB Settles No Bond Purchases for First Time Since August

Feb. 20 (Bloomberg) -- The European Central Bank’s government bond buying ground to a halt last week.

The Frankfurt-based ECB said no transactions were settled in the week through Feb. 17 -- for the first time since August - - after 59 million euros ($78 million) were spent the previous week. The ECB will take seven-day term deposits tomorrow to absorb the 219.5 billion euros of liquidity created since its Securities Markets Program started in May 2010, a practice it employs to ensure the purchases don’t fuel inflation.

The ECB resumed bond purchases in August, ending a four-month hiatus, after the sovereign debt crisis escalated and drove up bond yields in Italy and Spain. Yields have fallen across the 17-nation euro area since the ECB flooded the banking system with a record 489 billion euros in three-year loans in December. The ECB’s bond buying, which it says is aimed solely at ensuring transmission of its interest rates on financial markets, has dwindled since then.

“It’s a sign that market tensions have eased,” said Nick Kounis, head of macro research at ABN Amro NV in Amsterdam. “It’s probably more a reflection of that than having decided to move away from the program. But the situation in Greece has highlighted the risks the ECB could potentially face.”

Greek Bond Swap

To ensure it isn’t forced to take losses in a Greek debt restructuring, the ECB last week swapped the Greek bonds it purchased under the SMP for assets of identical structure and nominal value that are exempt from so-called collective action clauses. The ECB has also tried to negotiate with Greece to exclude the Greek bonds in euro-region central banks’ investment portfolios from a restructuring.

Euro-area finance ministers are meeting in Brussels today to settle remaining disputes over a 130 billion-euro Greek bailout and sanction a private-sector bond swap, attempting to fend off the euro area’s first sovereign default.

The ECB’s bond purchases have split its policy makers, some of whom say they blur the line between monetary and fiscal policy. Former ECB Chief Economist Juergen Stark resigned at the end of 2011 over the bond program.

     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
     31              2.667              72.0
     32              0.603              72.5
     33              1.121              73.5
     34              0.164              73.5
     35              0.113              74.0
     36              2.313              76.5
     37              0.146              76.5
     38                  0              76.5
     39                  0              76.5
     40                  0              76.5
     41              0.711              77.0
     42              0.369              77.5
     43                  0              77.5
     44                  0              77.5
     45                  0              77.5
     46              0.432              76.5
     47                  0              77.0
     48                  0              77.0
     49                  0              76.0
     50                  0              76.0
     51                  0              76.0
     52                  0              76.0
     53                  0              76.0
     54                  0              75.0
     55                  0              75.0
     56                  0              75.0
     57                  0              75.0
     58                  0              74.0
     59                  0              74.0
     60                  0              74.0
     61                  0              74.0
     62                  0              74.0
     63                  0              74.0
     64                  0              74.0
     65                  0              74.0
     66                 22              96.0
     67                 14.3           110.5
     68                  6.65          115.5
     69                 13.3           129.0
     70                 13.96          143.0
     71                  9.79          152.5
     72                  3.95          156.5
     73                  3.80          160.5
     74                  2.31          163.0
     75                  2.24          165.0
     76                  4.49          169.5
     77                  4.00          173.5
     78                  9.52          183.0
     79                  4.48          187.0
     80                  7.99          194.5
     81                  8.58          203.5
     82                  3.66          207.0
     83                  0.64          207.5
     84                  3.36          211.0
     85                  0.02          211.0
     86                  0.46          211.5
     87                  1.1           213.0
     88                  3.77          217.0
     89                  2.24          219.0
     90                  0.06          219.0
     91                  0.12          219.0
     92                  0.06          219.5
     93                  0             219.5

* = 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: Craig Stirling at cstirling1@bloomberg.net

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