ECB increases government bond purchases

13th December 2010, Comments 0 comments

The European Central Bank said Monday that it increased up purchases of eurozone government bonds significantly last week, although the amount fell short of market expectations.

The ECB bought 2.667 billion euros (3.6 billion dollars) in sovereign bonds, up from the 1.965 billion euros it purchased the previous week.

This was the highest amount since early July, when weekly ECB purchases amounted to four billion euros' worth of bonds, and were .

The ECB does not identify whose bonds it buys but it is widely believed to be focusing on debt issued by Greece, Ireland -- who have been bailed out by the EU and International Monetary Fund -- and by Portugal, which has come under increasing pressure to follow suit.

Since the ECB's controversial Securities Markets Programme was launched in May during the Greek debt crisis, the central bank has bought government bonds worth around 72 billion euros in total.

That was equivalent to 15.5 percent of the outstanding bonds of the three peripheral eurozone countries, ING analyst Martin van Vliet noted.

Markets had been bracing for a substantial amount of debt purchases and van Vliet said "frankly, it is less impressive than we had expected."

In the programme's first week, purchases totaled 16.5 billion euros but the amounts fell to zero in late October and early November.

The ECB is not keen to take sole responsibility for resolving the bloc's debt crisis and German central bank governor Axel Weber has been joined by others in stressing that the bond purchasing programme must be brought to an end at some point.

ECB president Jean-Claude Trichet has urged eurozone governments to "live up to their responsibilities" by getting their finances in order and reaching agreement on a permanent debt resolution mechanism.

The latest amount of purchases "highlights the ECB's underlying discomfort with the bond-purchasing programme," van Vliet said.

He forecast however that the ECB would have to increase its role as "peripheral bond investor of the last resort" early next year.

"We expect more, but reluctant bond buying from the ECB in 2011," the analyst said.

© 2010 AFP

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