Icap’s Chris Clark alerts us on Friday to the fact that European liquidity markets are already preparing themselves for a potential liquidity squeeze come the end of the year.
As he notes:
Month-ends have become increasingly significant events for the Eurozone repo markets over the second half of this year as levels of excess liquidity have diminished and market rates have slowly edged higher. This Thanksgivings Day/November month-end liquidity hump has proved a tricky one for the market to manoeuvre, but already attention is focusing on the impending year-end as evidence stacks up to suggest funding might be problematic for some.
They’re noting something curious about ECB seniority in light of Thursday’s revelations about the OMT. The ‘technical features’ confirm that the OMT will receive equal treatment with ordinary bondholders if a eurozone sovereign restructures its debt. But, in the Q&A, Draghi also confirmed that the old SMP bond holdings will remain senior. It will be first in the queue, ahead of bondholders and the OMT. Read more
So, we are days from finding out what the ECB is planning to do… or at least, days away from knowing more than we do now.
But immediate largesse in the bond market isn’t the only bit of help that should be concentrated on. There is still Spain’s bank-bailout to consider and where its costs should ultimately lie. Read more
‘We’re not done yet, but we’re working on it’, a rather annoyed-looking ECB present Mario Draghi more or less told the public after the last meeting of the Governing Council. The piece of work in question was, of course, the planned intervention to support government bond markets conditional upon ailing sovereigns being part of a formal bailout. (Here’s looking at you, Spain.)
The lack of detail initially underwhelmed markets that had expectations for greater granularity around the action plan. That eventually reversed, possibly when people realised what Draghi said was actually pretty daring when measured by the ECB’s own standards and stated mandate. Read more
The European Central Bank’s government bond purchases came to a halt last week for the first time since August in a sign the emergency debt buying programme is being wound down, reports the FT. The ECB’s inactivity reflects improved market conditions, which have been aided by the central bank’s three-year liquidity operation in December that averted a credit crunch in the eurozone. The ECB has more or less frozen the programme in the past few weeks after eurozone bonds have seen a sharp rally following the offer of three-year loans to the region’s banks on December 8.
We are indebted to Marc Ostwald of Monument Securities for this:
AMSTERDAM, Dec 20 (Reuters) – The Dutch central bank cancelled its interim dividend, thereby increasing the government’s budget deficit, saying it may make a loss in 2011 due to the European Central Bank’s bond buying programme, the Dutch Finance Minister said on Tuesday.Read more
We have a mandate and we have to stick to our mandate. Fixing an interest rate for a country is certainly not compatible with our mandate. You would guarantee a certain refinancing cost for a government and you could not argue that this was not monetary financing.
The stated purpose of the SMP is to cope with dysfunctional markets and it’s not to ensure a specific spread for a specific country.Read more
(Reuters) – ECB Executive Board Member Juergen Stark will step down from his post because of a conflict over the central bank’s controversial bond-buying programme, two sources told Reuters on Friday.
(ECB had no comment to Reuters. Quick question. Does this make bond buying more likely if he leaves and isn’t around to object, or does it make it less likely as conflicts spring out into the open?) Read more
Update 1435 UK time: The number’s in and it’s €22bn, which takes the total for all ECB bond purchases to €96bn. Again, watch those sterilisation numbers (bid rate, total size of bid, etc). Related fact du jour — the ECB liquidity surplus currently stands at €160bn based on the lending operations that took place in August, according to Barclays Capital. At its biggest in over a year.
We almost feel embarrassed for the European Central Bank. Almost. Its reputation for applying constructive ambiguity in the service of deploying immense firepower is under severe pressure anyway.
A short time ago, right in the middle of President Trichet’s press conference, the ECB had apparently begun buying (or the very least checking prices for) Irish and Portuguese bonds. Not Italian or Spanish bonds so far as we know, even if it seems that trading in shorter-dated Italian debt became very volatile, apparently in anticipation of orders from the ECB. Read more
BRUSSELS(Dow Jones)–Euro-zone governments have begun discussing a change to their permanent sovereign rescue fund that could raise the currency bloc’s total rescue loan capacity to nearly EUR1 trillion, a senior euro-zone official said. Read more
We won’t know if it really did happen, not until next week’s figures on Securities Markets Programme purchases. (Current total: €74bn)
But since there was plenty of rumour on Tuesday that the European Central Bank (via the Bank of Italy) intervened to buy Italian bonds from a terrified secondary market, mind if we point something out in the interim? Read more
From a Goldman ‘one year on’ note on the euro crisis on Thursday (emphasis ours):
While the pros and cons of external technical assistance (and a break from market funding) are being debated, the ECB remains the main buyer of Portuguese government securities. Of the latter, more than three-quarters were held by residents of other EMU member countries (mostly financial institutions) at the outset of the crisis. Read more