Europe’s central banks began buying peripheral European debt on Monday.
Yields almost immediately dropped on Greek, Portuguese, Spanish and Irish debt. But what have the central banks been buying exactly, and what effect has it had on the liquidity of the bonds. Remember that the European Central Bank’s (ECB) bond-buying is meant to ease the strain in the sector.
And what strain.
For much of last month, before the announcement of the EuroTarp bailout package, you could drive a chariot through Bid/Ask spreads on Greek debt. We don’t have an old table but we’re told by Marc Ostwald over at Monument Securities that there wasn’t even much of a market last week.
‘Twas dealing “by appointment” and only (presumably) for the very brave.
In any case, on Wednesday, Bid/Asks on Greek bonds look like this:
As for what the central banks have been buying, exactly, Ostwald says he hears it’s been mostly Greek, Portugese and Irish zero to 10-year bonds on Monday and Tuesday, in €20-25m clips. On Wednesday it was mostly Greek debt in small clips, and in the afternoon, Portugese bonds.
The regional breakdown of what Europe’s central banks are buying is likely to be of much interest, of course. Most people are hoping the ECB will at least publish the amount of government bond-buying.
This, for instance, is from Barclays Capital’s European fixed income strategist, Alan James:
With much of the euro area closed due to today’s Ascension Day holiday, today’s 5y and 15y BTP auctions will be worth watching in order to gauge domestic investor appetite after what has been a very strong rally in EGB spreads this week. We expect the open market operations section of the ECB website to disclose the first information on Monday’s government bond purchases, which settle today, an expectation reinforced by this part of the website being inaccessible since yesterday afternoon. If the information is revealed it is likely to be at 8.10 London time: that is when the size of covered bond purchases is updated daily. The total amount of government bonds bought on Monday is likely to have been relatively small – no more than EUR5bn at most. This is liable to understate the scale of support to peripherals, given that part of the EUR300bn in existing portfolios may also have been rebalanced. It is extremely unlikely there will be any details on the bonds purchased. Initially, we do not expect these purchases to be specifically sterilised by term deposits or ECB certificates (and given the very large EUR275bn liquidity surplus, it does not really matter in the near term).
It’s just after 9am London time now, and there’s no sign of any government bond-buying disclosures on the ECB website, just yet.
Related links:
The slippery slope to non-sterilisation – FT Alphaville
Europe’s QE is sterilised and sensitive – FT Alphaville