ECB spends a record €22bn on buying up bonds

THE European Central Bank spent a record amount on government bonds last week as it began buying Italian and Spanish securities to contain the debt crisis.

The Frankfurt-based ECB said it settled purchases worth €22 billion in the week through August 12. That also surpasses the €16.5bn the ECB spent during the first week of its initial foray into Greek markets in May last year.

“The market optimists will interpret this number as good news as it underscores the ECB’s resolve,” said Christoph Rieger, of Commerzbank AG in Frankfurt. “Equally, the pessimists will point out that it is bad news as it shows how much money the ECB had to commit for the yield compression seen.”

The ECB was forced to start buying Italian and Spanish bonds on August 8 after politicians failed to convince investors they could contain the debt crisis. Ten-year yields in both countries, which had soared to euro-era highs, last week dropped by more than 100 basis points to about 5%.

ECB policy makers are divided over the bond-purchase programme, which when introduced last year was intended as a temporary measure while governments prepared a response to the debt crisis. Germany’s Bundesbank opposed the programme when it was started and was also against using it last week.

The €22bn spent “strikes a good balance,” said Christian Schulz, at Joh Berenberg Gossler & Co in London. “It impresses the market but it’s not an amount that will cause lots of frowns in the Governing Council or among taxpayers. If there aren’t any major ups and downs, the ECB will be able to spend less in the coming weeks.”