August 22, 2011 / 3:01 PM / 8 years ago

UPDATE 1-ECB scales back govt bond purchases after yields fall

 (Adds economist comment, background)	
 FRANKFURT, Aug 22 (Reuters) - The European Central Bank
reduced its bond purchases last week to 14.3 billion euros from
22 billion 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 Italy and Spain nearly succumbed to a
fierce market attack which threatened to overwhelm euro zone
government's efforts to resolve the debt crisis.	
 The intervention has worked insofar as yields on Italian and
Spanish bonds have dropped to around 5 percent from levels above
6 percent before the ECB stepped in.	
 Berenberg bank economist Christian Schulz expected the
volume of purchases the ECB makes to decline further as long as
no fresh market turbulence is triggered.	
 "Still, the large figure signals that the ECB remains
committed to defending sustainable yields for the two
countries," Schulz said.	
 The amount purchased last week, reported by the ECB on
Monday, was in line with the 14 billion euros seen in a Reuters
poll. 	
 The central bank's latest purchases, which span the period
of August 11-17, send the programme's total past the 100 billion
euro mark to 110.5 billion euros.	
 The ECB does not break down the purchases. However, traders
say it has been concentrating its efforts on Italian bonds and
that it is continuing to buy.	
 It resumed its purchases following a 19-week pause in the
programme, despite opposition from a four-man group on its
policymaking Governing Council, led by Germans Jens Weidmann and
Juergen Stark. 	
 The Bundesbank, of which Weidmann is president, renewed its
attack on secondary market bond purchases earlier on Monday,
saying they reduce incentives for "appropriate fiscal policy."
 	
 Commerzbank economist Michael Schubert said the latest bond
purchases figures showed a similar pattern to May 2010, when the
ECB began the bond-buy programme with 16.5 billion euros worth
of purchases before rapidly reducing its intervention.	
 "The ECB Council's dilemma can be seen in the figures," he
said. "They have to buy to stabilise and they have stabilised.
But there is an unmistakable reluctance to buy at all."	
 Monday's latest figures of 14 billion euros was the third
largest amount it has purchased since it began its Securities
Markets Programme last May.	
 Critics of the purchases say they push the ECB into the
fiscal policy arena, overstepping its mandate and threatening
its independence.	
 A majority of the bank's policymakers, however, felt obliged
to act as action from euro zone governments failed to stem the
spread of the bloc's debt crisis towards Italy and Spain, two of
the bloc's largest economies.	
 The ECB has said it will "actively implement" the programme
although board member Juergen Stark said on Friday it was a
temporary measure designed to buy time for troubled members.
 	
 The ECB agreed to reopen the bond-buy programme after
promises from European governments that the European Financial
Stability Facility would take over this task within months.	
 However, the ECB may have to keep up the plan longer than it
expected. 	
 Ewald Nowotny, a member of the ECB's Governing Council, said
earlier on Monday he was worried that political jousting in
member states could end up delaying beyond October parliamentary
approvals of the July 21 deal that would empower the EFSF to buy
bonds. 	
   
 The bond purchases take 2-3 days to settle, meaning that
when the ECB is buying, the weekly figures do not necessarily
give the full picture.	
 It and the 17 euro zone national central banks can buy
government and corporate bonds from banks and other investors
under the programme, but not directly from governments.	
 As usual, the ECB will take one-week deposits from
commercial banks on Tuesday to neutralise the monetary impact of
the purchases and the inflationary pressure they create.     
 For Reuters ECB information page on bond purchases, see
 .	
	
 Date    Bonds bought  Bonds matured 	
	
14/05/2010      16.5 	
21/05/2010      10    	
28/05/2010      8.5   	
04/06/2010      5.5   	
11/06/2010      6.5   	
18/06/2010      4.2   	
25/06/2010      4     	
02/07/2010      4     	
09/07/2010      1     	
16/07/2010      0.302 	
23/07/2010      0.176 	
30/07/2010      0.081 	
06/08/2010      0.009 	
13/08/2010      0.01  	
20/08/2010      0.338 	
27/08/2010      0.142 	
03/09/2010      0.173 	
10/09/2010      0.237 	
17/09/2010      0.323 	
24/09/2010      0.134 	
01/10/2010      1.384 	
08/10/2010      0.009 	
15/10/2010      0     	
22/10/2010      0     	
29/10/2010      0     	
05/11/2010      0.771 	
12/11/2010      1.073 	
19/11/2010      0.713 	
26/11/2010      1.348 	
03/12/2010      1.965 	
10/12/2010      2.667 	
17/12/2010      0.603 	
24/12/2010      1.121 	
31/12/2010      0.164 	
07/01/2011      0.113 	
14/01/2011      2.313 	
21/01/2011      0.146           0.087	
28/01/2011      0	
04/02/2011      0	
11/02/2011      0	
18/02/2011      0.711           0.040	
25/02/2011      0.369	
04/03/2011      0	
11/03/2011      0	
18/03/2011      0               0.170	
25/03/2011      0.432           1.054	
01/04/2011      0	
08/04/2011      0               0.055	
15/04/2011      0               0.830	
22/04/2011      0	
29/04/2011      0	
06/05/2011      0	
13/05/2011      0	
20/05/2011      0               1.227	
27/05/2011      0	
03/06/2011      0	
10/06/2011      0	
17/06/2011      0               1.008	
24/06/2011      0	
01/07/2011      0	
08/07/2011      0	
15/07/2011      0	
22/07/2011      0               0.245	
29/07/2011      0	
05/08/2011      0	
12/08/2011      22.0	
19/08/2011      14.291	
 Total       110.5	
 	
 (Editing by Toby Chopra)
 	
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