Apparently, the European Central Bank bought unusually large amounts (at least €1bn) of Italian debt on Thursday. Just as well?
Stefano Di Domizio of Lombard Street Research wants more:
Screaming call for the ECB to step up bond purchases
The above is a chart by Di Domizio showing how Italian bonds’ bid-offer spreads have diverged from the yield spread to German debt. The wider the spread between the bonds’ bid and offered prices, the less liquid and frequently traded they tend to be. (It’s also a good chart for showing how liquidity for Italian bonds died between July and November 2011 – with a brief blip in August when the ECB came in as a bidder of last resort.)
We wonder if end-of-year drop-off in liquidity might have exacerbated things, but looking at the bid-offer spreads on some bonds it doesn’t seem healthy. Which suggests the ECB will come back as a big bidder. (Plus, it’s been speculated before, notably by Divyang Shah of IFR, that the central bank does pay attention to bid-offer when targeting sovereign debt purchases).
In the meantime, another collateral crunch datapoint? (i.e. Italian bonds really aren’t being lent out by market participants very much at all.)
What the ECB can really do about that problem is a another question altogether…
Related links:
Why Italy is ‘Oh, so special’ – FT Alphaville
Wake up and smell the BTPs – FT Alphaville (2010)