ECB returns to bond-buying with €711m splurge

City A.M. Reporter
The European Central Bank settled €711m (£649m) worth of bond purchases last week, corroborating dealers who said it had been buying Portuguese debt.

The new purchases, which ended a three-week pause in the programme, raise the programme's total spending to €77bn from €76.5bn, when rounded to the closest half billion.

Portuguese sovereign bond yields hit a euro lifetime high last week after disappointing GDP figures pointed to the country sliding back into recession this year.

Traders had spotted signs of the ECB buying Portuguese bonds at times over the past two weeks, although intervention late last week will not show up in today's figures.

Most economists and bond analysts believe that rising bond yields will eventually force Portugal to seek financial aid, as did Greece and Ireland. But Lisbon has resisted pressure to do so for months, longer than many expected.

"Investors remain very sceptical about the ability of this country to get out of the woods without requesting any help," RBS economist Silvio Peruzzo said. "The ECB's role remains very important to prevent spreads from blowing up."

He said Portugal was trying to manage without applying for aid until at least a late March EU summit, at which European leaders hope to unveil a "comprehensive package" to deal with the bloc's debt crisis, and that the ECB might have to keep buying until at least then.

European Union member states last week showed increasing concern about Portugal's ability to fund itself in financial markets, and believed Lisbon would need to seek a bailout by April.

And European policymakers at a weekend G20 summit said Lisbon must stick to its deficit reduction targets and implement more promised economic reforms to convince markets it is able to service its debt and does not need outside aid.

Since the ECB's purchases take 2-3 days to be finalised, it is likely that the settled amount includes purchases made over a week ago but not the most recent ones.