Eurozone bonds rates firm despite ECB injection

21st December 2011, Comments 0 comments

Eurozone bond rates rose on Wednesday, except French yields, despite a massive injection of cheap three-year cash by the European Central Bank into the banking system.

The ECB made available 489.191 billion euros ($641 billion) to 523 banks in the eurozone under an exceptional three-year arrangement of unlimited loans at 1.0 percent.

Analysts had expected the injection to range from 100 billion to 500 billion euros.

Ten-year yields on several national bonds in the eurozone had eased before the ECB's operation.

But once the results were announced, yields firmed, except for France.

The French 10-year borrowing rate fell to 3.069 percent from 3.092 percent at the close on Tuesday.

The 10-year yield on eurozone benchmark German bonds firmed to 1.988 percent from 1.951 percent.

The Spanish 10-year rate, which had fallen early in the day to below 5.0 percent for the first time since October firmed to 5.097 percent from 5.030 percent.

The Italian 10-year yield rose to 6.676 percent from 6.571 percent.

At Dutch banking and insurance group ING, economist Martin Van Vliet said: "The (ECB) allocation for three years today is the equivalent of nearly one and a half times the bond issuance programmes of Spain and Italy in 2012."

He said: "But we don't know if this money will be used mainly to buy debt in peripheral (eurozone) countries."

He noted that there was uncertainty particularly because any bonds bought would have to be marked into the asset side of balance sheets of banks at market values, which was low.

Consequently, only banks highly exposed to debt in the peripheral countries, usually banks based in those countries, might be in a position to buy government bonds. Other banks might prefer to use the extra funds to lend to businesses, he commented.

© 2011 AFP

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