ECB cuts back bond buying as yields fall

City A.M. Reporter
THE European Central Bank reduced its bond purchases last week to €14.3bn (£12.5bn) from €22bn a week earlier, scaling back its market intervention after its first bout of buying helped Italian and Spanish debt yields to ease.

The ECB reactivated its controversial bond-buying programme earlier this month after borrowing costs for Italy and Spain soared to unsustainable highs.

The intervention has worked insofar as yields on Italian and Spanish bonds have dropped to around five per cent from levels above six per cent before the ECB stepped in.

However, there were further jitters in the Eurozone yesterday, after Cyprus was forced to pay a yield of seven per cent on the sale of €23.1m worth of 10-year bonds, compared to 6.25 per cent at a similar auction in June.

The government responded by announcing it would consider further austerity measures on top of a two-point increase in sales tax, a three per cent contribution from civil servants’ salaries and additional tax for high earners

Meanwhile, there were doubts over the latest rescue for Greece, after ratings agency Moody’s said demands for collateral from some of the states providing rescue funds could put its bailout at risk.

Greece agreed last week to provide AAA-rated Finland with cash collateral for its loans to Athens, in a bilateral agreement that sparked requests for similar treatment from Austria, the Netherlands and Slovakia.

Moody’s became the first rating agency to warn that the row over collateral could scupper payouts to Greece, saying a proliferation of such deals would be credit-negative for a nation it currently rates at Ca, just one notch above default.