–Adds Additional Comments on ECB’s Government Bond Buying Program

BRUSSELS (MNI) – There is a slight improvement in the functioning
of the secondary market for government bonds, but the European Central
Bank remains cautious, ECB President Jean-Claude Trichet said on
Thursday.

Trichet attributed the observed improvement to the fact that
governments were taking hard measures to put their fiscal affairs in
order and markets were taking notice of the new policies.

“We are observing the situation very carefully. It is not untrue to
observe that there is a tendency for the secondary market to function
perhaps a little bit better, but I think it is too early to draw a
definitive conclusion,” Trichet said.

“We have the feeling, but we will continue to observe with great
attention, that what is needed in terms of the level of interventions on
our part has been progressively diminishing,” he said. He noted that the
ECB’s purchases of sovereign debt had dropped to E4 billion in each of
the past two weeks from E16.5 billion when the program started.

“It is something that looks like a trend, but we remain alert,”
Trichet said. “We are not surprised that the market is a little bit
better, because as I said before [the new fiscal policies of EMU
governments] are being progressively incorporated” by markets.

He added: “What is clear is that for reasons that are complex…it
seems that [with] all of the positive decisions that have been taken,
all of the countries concerned have changed their fiscal policies in
terms of what existed some months, weeks ago.”

The ECB president said markets had been “much too pessimistic on
the capacity of [the Europeans] to make decisions.”

Trichet also made clear that the ECB had not taken any decision at
today’s Governing Council meeting on whether to put a time limit — or a
volume limit — on the bond purchases. He stressed that the ECB fully
intended to continue sterilizing the bond buys.

He was pressed on whether the E440 billion European Financial
Stability Fund could take over the ECB’s bond-buying role, and replied
that this had yet to be decided.

“If and when there is a mobilisation of the stability fund, we will
see exactly what is decided by the authorities concerned and what would
be eligible for such financing, but I cannot say anything more on that
at this stage,” Trichet said.

With markets pressuring the euro in the spring because of concerns
about the debt and deficit levels in some EMU countries, the Eurozone
and the International Monetary Fund offered Greece up to E110 billion in
loans — tied to stiff fiscal conditions — and set up a separate E750
billion emergency facility as a last resort for other members of the
single currency bloc.

At its meeting Thursday, the ECB left its key refinancing rate
unchanged at 1.0%, where it has been since a 25-point cut that was
decided at the Council’s May 7, 2009 meeting.

The ECB left the deposit rate — which is the floor for euro money
market rates — at 0.25%, and the marginal lending rate — which is the
ceiling — at 1.75%.

The next policy-making Governing Council meeting is scheduled for
August 5.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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