–Announces 1-Wk Tender To Reabsorb E72 Bln In Cumulative Bond Buys

FRANKFURT (MNI) – The European Central Bank stepped up its
purchases of sovereign EMU debt last week in a bid to counter rising
peripheral bond spreads, spending some E2.667 billion on bonds that
settled by last Friday, the ECB announced Monday.

The figure was the highest weekly total since the week ending July
2, when the ECB bought and settled E3.7 billion worth of bonds before
curtailing its activity sharply in the weeks and months that followed.
In the previous week ending December 3, the ECB bought bonds worth
E1.965 billion.

Still, bond buys remain well below the double-digit billion figures
seen at the outset of the program, suggesting that the ECB will not
yield to pressure from the International Monetary Fund or the markets to
significantly step up its interventions.

Following the recent flare-up of the sovereign debt crisis, markets
had speculated that the ECB might announce a massive asset purchase
program a la Fed totaling E1 trillion or even E2 trillion or at least
significantly increase spending without explicit pre-commitment.

Comments from ECB Governing Council member Mario Draghi on Friday
highlight ongoing concerns over the SMP: “I’m only too aware that we
could easily cross the line and lose everything we have, lose
independence, and basically violate the [EU] treaty,” he said.

Draghi reiterated that the ECB’s bond buys are aimed only at
ensuring the proper transmission of monetary policy and that central
bank will continue to sterilize all acquisitions under the SMP.

In line with that policy, the central bank said Monday it would
reabsorb E72 billion Tuesday in a quick tender to collect one-week term
deposits.

That total represents the cumulative volume of bonds purchased
through the Securities Market Program since its inception in May and
settled as of last Friday, rounded to the nearest half billion.

The operation, to be conducted on Tuesday at 10:30 GMT, will be in
the form of a variable-rate tender with a maximum bid rate of 1.00%, the
bank said. The liquidity will be held for one week at the bank as a term
deposit. The fixed-term deposits can be used as collateral in the
Eurosystem’s credit operations.

The central bank also said it intends to hold another
liquidity-absorbing operation next week.

— Frankfurt bureau: +49 69 720 142; email: jtreeck@marketnews.com —

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