Euro central banks buying bonds

Flamed Diving

HELSINKI, May 10 (Reuters) - Euro zone central banks have started buying government bonds and all will be active in the purchases, the Bank of Finland said on Monday.

"All euro system central banks will be involved in carrying out the purchases," a spokesman said.

He declined to comment further on the plans.

ECB release:

10 May 2010 - ECB decides on measures to address severe tensions in financial markets

The Governing Council of the European Central Bank (ECB) decided on several measures to address the severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy oriented towards price stability in the medium term. The measures will not affect the stance of monetary policy.

In view of the current exceptional circumstances prevailing in the market, the Governing Council decided:

To conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional. The objective of this programme is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism. The scope of the interventions will be determined by the Governing Council. In making this decision we have taken note of the statement of the euro area governments that they “will take all measures needed to meet [their] fiscal targets this year and the years ahead in line with excessive deficit procedures” and of the precise additional commitments taken by some euro area governments to accelerate fiscal consolidation and ensure the sustainability of their public finances.
In order to sterilise the impact of the above interventions, specific operations will be conducted to re-absorb the liquidity injected through the Securities Markets Programme. This will ensure that the monetary policy stance will not be affected.

To adopt a fixed-rate tender procedure with full allotment in the regular 3-month longer-term refinancing operations (LTROs) to be allotted on 26 May and on 30 June 2010.

To conduct a 6-month LTRO with full allotment on 12 May 2010, at a rate which will be fixed at the average minimum bid rate of the main refinancing operations (MROs) over the life of this operation.

To reactivate, in coordination with other central banks, the temporary liquidity swap lines with the Federal Reserve, and resume US dollar liquidity-providing operations at terms of 7 and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment. The first operation will be carried out on 11 May 2010.

http://www.ecb.europa.eu/press/pr/date/2010/html/pr100510.en.html

EU Bailout Package Boosts European Stocks (fixed link)

http://online.wsj.com/article/SB10001424052748703880304575235462819341480.html?mod=WSJ_Markets_LEFTTopNewsInt

I felt that this was worthy of it's own thread. How will this affect Irish bonds? We shall wait and see...

http://www.bloomberg.com/apps/cbuilder?ticker1=GIGB10YR:IND

Pot Noodle =

The first link has been pulled

Flamed Diving

Pot wrote:

The first link has been pulled

Fixed. If it fails, here is the markets page:

http://online.wsj.com/public/page/news-financial-markets-stock.html

Pot Noodle =

Thanks

gleep

So I'm guessing this means we'll be seeing another early budget soon enough?
Do we actually have to deposit a few billion into this fund? I don't like where this is going folks..........

Pot Noodle =

IMF

ei.sdraob

gleep wrote: »

Do we actually have to deposit a few billion into this fund?

Im not 100% clear on this development and its details (didn't have much time this morning to read due to work), so im open to corrections

* some of the money will come from structural funds, we paid 1.5bln last year into the EU? this might have to increase

* ECB buying exchanging junk bonds for their own paper (which is backed by what exactly?) is akin to conjuring "money" out of thin air, actually this feels awfully like NAMA but on a much larger scale

dont quote me or anything my understanding of what exactly is happening is still hazy

Flamed Diving

Thought I would keep people abreast of this mornings bond movements.

Flamed Diving

ei.sdraob wrote: »

Im not 100% clear on this development and its details (didn't have much time this morning to read due to work), so im open to corrections

* some of the money will come from structural funds, we paid 1.5bln last year into the EU? this might have to increase

* ECB buying exchanging junk bonds for their own paper (which is backed by what exactly?) is akin to conjuring "money" out of thin air, actually this feels awfully like NAMA but on a much larger scale

dont quote me or anything my understanding of what exactly is happening is still hazy

The Fed seem to involved in providing liquidity:

To reactivate, in coordination with other central banks, the temporary liquidity swap lines with the Federal Reserve, and resume US dollar liquidity-providing operations at terms of 7 and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment. The first operation will be carried out on 11 May 2010.

ei.sdraob

Flamed Diving wrote: »

Thought I would keep people abreast of this mornings bond movements.

seems like what happened after BoE announced their QE programme where they would buy back stuff

now how many months until inflation gets out of control like in the UK?

Flamed Diving wrote: »

The Fed seem to involved in providing liquidity:

yes i seen that line in the article

On top of this, the U.S. Federal Reserve said Sunday that it would revive an emergency lending program used during the financial crisis. The Fed will ship billions of dollars overseas through foreign central banks, including the ECB, so they can, in turn, lend the money out to banks in their home countries in need of dollar funding.

the Fed sending in helicopters/planes full of dollars? scratches head

Flamed Diving

ei.sdraob wrote: »

seems like what happened after BoE announced their QE programme where they would buy back stuff

now how many months until inflation gets out of control like in the UK?

DidierMc must be rubbing his hands with glee.

ei.sdraob

Flamed Diving wrote: »

DidierMc must be rubbing his hands with glee.

ok im still trying to get my head around all of today's news

But seems the plan is to "keep the wolves away" (that Swedish minister...) while plans for "further integration and regulation" are rolled out

Seems like we gonna go down the path of further political integration at EU level then

It was interesting to see that access to this "facility" is conditional on "austerity" measures being implemented, they may as well call it the EMF so

Flamed Diving

ei.sdraob wrote: »

ok im still trying to get my head around all of today's news

But seems the plan is to "keep the wolves away" (that Swedish minister...) while plans for "further integration and regulation" are rolled out

Seems like we gonna go down the path of further political integration at EU level then

It was interesting to see that access to this "facility" is conditional on "austerity" measures being implemented, they may as well call it the EMF so

You mean the fella with the pony tail and earring?

Well there were two camps at these recent talks. One wanted an EMF, and the other just wanted to increase structural funding. Perhaps a bit of a middle road has been taken, though with the EMF winning more of the tilt.

Flamed Diving

Karl Whelan, always a great distiller of information:

After the excitement of the weekend’s EU announcement, the question most people will ask is “will it work?” I think the answer to this question depends on what we mean by “work”.

There are obvious parallels here with the banking crisis. As markets began to doubt the solvency of many institutions, including the Irish banks, access to short term liquidity dried up for these institutions. Governments provided various liability guarantees to help these banks regain access to markets (ours being the most extensive) but these guarantees did not change the underlying solvency picture. Ultimately, the problem of insolvent banks had to be dealt with via costly recapitalisation measures, a process that we in Ireland have yet to complete.

The size of the funds announced in the EU deal are large enough to most likely ensure that, for a while, no EU country will fail to roll over its sovereign debt. In that sense it will most likely work. But it doesn’t change the fiscal reality.

Last week’s €110 billion Greek deal wasn’t well received by the markets because it still seemed to imply a Greek default was on the way. Last night’s announcement is being well received but then it doesn’t actually come with a concrete fiscal restructuring plan for Portugal, Spain or Ireland, so the plan can be taken good news without having to question any dubious underlying assumptions about fiscal sustainability. If the time comes when this fund is tapped but the markets don’t buy the stabilisation plan announced, the situation could unravel again.

Most of the thoughtful reaction elsewhere points to it being a long and complicated road ahead. The Baseline Scenario guys give their reaction to the plan here. Arthur Beesley also has a nice piece in the Irish times here.

Stinicker

Basically they are now knitting the entire EU's debt together and consolidating control over the crisis to a federal level in Brussels. Last night in one clean sweep the ECB totally undermined national sovereignty of the state governments and financial regulators.

The EU and ECB now are sending a solid message to the world you will have to drag us all down and united we stand. It looks like good news for the class idiots like Ireland, Greece, Portugal, Spain and Italy (PIIGS) however it looks like the bright pupils, like Germany, Finland, Holland etc. just saw their trust fund wiped out and they're not going to get to go to Harvard after all.

Scarab80

Stinicker wrote: »

The EU and ECB now are sending a solid message to the world you will have to drag us all down and united we stand. It looks like good news for the class idiots like Ireland, Greece, Portugal, Spain and Italy (PIIGS) however it looks like the bright pupils, like Germany, Finland, Holland etc. just saw their trust fund wiped out and they're not going to get to go to Harvard after all.

That pretty much sums it up perfectly, i just hope that the ECB have very strict fiscal tightening requirements in place for countries who will see this as a lottery win.

Flamed Diving

Interesting chart from Spiegel.

SeanW

I'm not a huge fan of inflation, unlike certain ... rational ... individuals on this forum, but I think this could be a good thing IF the PIIGS are given a sharp lecture and a very tight timeline to balance their books.

In the long term (5 years plus) I'd like the Eurozone to consider making running annual budget surpluses a requirement for membership, along with a fixing of the Euro's value to gold.

Edit: I have one question. It said "all Euro Central banks" does that mean the purchases will be made by the ECB itself in Strasbourg or wherever, or does it mean that each national central bank will whip up the Euros locally to buy bonds in their region (or country?)

Économiste Monétaire

SeanW wrote: »

Edit: I have one question. It said "all Euro Central banks" does that mean the purchases will be made by the ECB itself in Strasbourg or wherever, or does it mean that each national central bank will whip up the Euros locally to buy bonds in their region (or country?)

The ECB itself (the body in Frankurt) doesn't actually lend any money, it holds more of a coordination function/top-level approval of monetary policy. Refinancing operations and standing facilities are decentralised to national central banks (e.g. the CBFSAI). They're in a better position to monitor securities markets in their own regions.