The ECB bond buying spree hits €129bn

THE European Central Bank (ECB) bought €13.3bn (£11.6bn) of sovereign bonds last week, data revealed yesterday, but the dramatic intervention was barely enough to shore up demand at two Eurozone debt sales last week.

And yields have begun to rise again, raising questions about how long the ECB can afford to keep up its purchases to keep a lid on market pressures.

The latest figures bring the ECB’s stock of Eurozone debt up to €129bn following president Jean-Claude Trichet’s announcement that the Bank would be restarting its bond-purchasing programme to bring Italian and Spanish yields down.

But both Italy and Spain saw weak demand at bond auctions last week, where they sold a total of €11.37bn – nearly €2bn less than the ECB mopped up in the secondary market.

Despite the ECB’s interventions, both nations saw below-average demand at sales last week, but did benefit from lower yields than at previous auctions.

That trend is now reversing: Spain’s ten-year yields jumped 14 basis points to 5.25 per cent yesterday, while Italy’s equivalent rates rose 25 basis points to 5.55 per cent. Six per cent is seen as a crisis point. Meanwhile yields on German bunds touched an all-time low of 1.84 per cent yesterday.

Traders speculated that the ECB had scaled back its purchases this week to put pressure on Rome to push through austerity measures, but the data confirming whether this is true will not be available until next week.

The ECB is expected to review its debt-buying programme this week.