Monday, August 15, 2011

ECB Buys Record Amount of Bonds Under SMP

The European Central Bank (ECB) spent 22 billion euros on bond purchases last week, as part of the expanded SMP (Securities Market Program), according to Reuters reports.  The purchases exceed the previous record of 16.5 billion euros that the ECB undertook when it began buying Greek government debt in May 2010.  The latest buying brings the total value of purchases under the program to 96 billion euros since the program began in May 2010.  It is understood that much of last week's buying was concentrated on Spanish and Italian bonds, while Greek debt makes up the majority of the total purchases in the program to date (which also includes Irish and Portuguese bonds).

The ECB last increased its interest rates by 25 basis points at its July meeting; pausing in May and June, after raising the rate by 25 basis points to 1.25% in April this year.  The ECB held the rate unchanged when it met earlier in August, and also announced a resumption of its bond buying program; which initially had been focused on Greece, Portugal, and Ireland.  The initial absence of Spain and Italy from the resumed bond buying program contributed to the deteriorating financial market sentiment that saw significant volatility in asset markets last week.  Spanish and Italian yields rallied (fell) as much as 100 basis points over the past week in response to the ECB's bond purchases.


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