Ten-year bond yields in Italy and Spain hovered just above 5% down from 6%The complete extent of the European Central Bank’s emergency operation to prop up Italy and Spain was revealed yesterday as it emerged that the Frankfurt-based institution went on a €22bn (£19bn) bond-buying spree at the commence of at the end week.Faced by the prospect that the eurozone’s third and fourth largest economies were being dragged into the sovereign debt crisis that has already claimed three single currency members, the ECB announced yesterday that at the end week’s buys of Italian and Spanish debts had broken all previous records.Analysts said the action had banished fears that the ECB – which earlier in August had shown reluctance to acquire Italian and Spanish bonds – had been half-hearted in its support. However they warned that the bank would demand to maintain the programme over the coming weeks or risk a fresh spike in bond yields in Rome and Madrid.The ECB’s publication of its activities in the European bond markets at the end week came as hopes faded that today’s summit meeting of the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, would result in plans for common eurobonds.Some in the financial markets had hoped that the talks would capture the huge step towards further European integration, despite the coolness of the Merkel administration towards the thought.European shares continued the recovery shown late at the end week while bond markets were silent. Ten-year bond yields in Italy and Spain hovered just above 5%. At the height of the crisis earlier this month, both countries were paying well over 6% to supply their debts and there were fears that borrowing costs could have quickly become unsustainable without the ECB’s aid.During Europe’s 15-month debt crisis, financial markets sensed that Greece, Ireland and Portugal were at the mark when a bailout became inevitable when their 10-year bond yields reached 7%.Victoria Cadman, an economist at Investec, said the ECB would demand to be active in the bond market for a hardly any weeks yet. “The ECB is doing quite a abundance to prop up Italy and Spain and aid to push down their yields,” she said. The number is relatively huge, however it is not enormous.”The ECB reactivated its securities market programme (SMP) after leaving it dormant for 19 weeks, despite opposition from a collection on the bank’s policymaking governing council, led by Germans Jens Weidmann and Jürgen Stark.John Higgins, senior market economist at Capital Economics, said the amount was larger than the financial markets had been expecting however “was still very small in relation to the outstanding amount of the Italian and Spanish administration bond markets. We continue to doubt that the ECB will be willing or able to draw a border under the eurozone’s rolling fiscal crisis.”Higgins pointed outside, however, that the ECB’s previous weekly record for buying bonds had been the €16.5bn spent during the SMP’s first week in May 2010, when it was locate up in response to the first debt crisis in Greece. Yesterday’s figures only comprehend ECB bond-buying for the first two days of the week, as only those would have settled by at the end Friday.”That being said, the latest buys are hardly a game-changer,” Higgins said. “Assuming they were all of Italian and Spanish administration bonds, they equate to just 1.4% of the combined outstanding amount of the two administration bond markets. By comparison, the €74bn that the ECB had previously bought is equivalent to encircling 16.5% of the combined outstanding amount of the administration bond markets of Greece, Ireland and Portugal.”European debt crisisEuropean banksBondsEuropean Central BankEuropeItalyEuropeSpainLarry Elliottguardian.co.uk © Twitter News & Media Limited 2011 | Employ of this content is subject to our Terms & Conditions | More Feeds
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