It must be painful viewing for Ireland and Portugal. Whether it’s risk aversion or a straight out bond bubble, yields are still falling on US treasuries – meaning the US government can borrow ever more cheaply.
One-year bonds (or to be exact, 52-week bills) have risen slightly to 0.265 per cent, from September’s record low of 0.26 per cent. But the other maturities are at or approaching record lows. Read more
Government bonds bought last week by the European Central Bank totalled €1,384m, a tenfold increase on last week’s €134m purchase.
As Ralph and David will shortly report on ft.com, purchases of Irish bonds were largely behind the increase, according to traders:
Ireland’s escalating banking crisis forced the ECB to ramp-up significantly its government bond buying programme last week, when purchases hit almost €1.4bn. Some of the ECB purchases reported on Monday may have been deals struck in the previous week but only settled last week.
Portugal is the latest PIIGS government to suffer a sharp increase in its cost of debt. Like Ireland earlier in the week, Portugal has raised a significant amount of debt at auction at roughly one percentage point above the last auction.
Unlike Ireland, Portugal raised just three-quarters of its intended €1bn offering – not because of a lack of demand, but because Lisbon refused to accept the very high yields demanded by some investors. €400m of 2014 bonds sold at 4.695 per cent; €350m 2020 bonds sold at 6.242 per cent. Read more
China continues to divest its dollar holdings of US debt, latest data show. Mainland China, Hong Kong and Taiwan all reduced their net holdings during June. Between them, at the peak they held $363bn in May 2009; as of June they hold less than half that amount, $170bn. Germany, France and the UK also divested during the month.
It’s a great time to sell for those with risk appetite. High demand has pushed yields to record lows (and prices, correspondingly, to highs) as widespread risk aversion makes US debt attractive to many. Read more
UK and French banks will be nursing losses this morning, after Irish bonds lost value yesterday. Rumours that that the ECB and Irish central bank were buying Irish bonds prompted us to look at banks’ sovereign debt holdings (the stress tests were useful, after all*).
RBS comes out with €1.1bn Irish debt in its trading books. It is followed by Credit Agricole (€0.76bn) and HSBC (€0.6bn). See chart, above. Read more
The European Central Bank is becoming masterly at making a virtue out of its modesty. Its latest boasting is about how little it has been spending on buying eurozone government bonds. Figures just released showed the ECB bought bonds worth only €176m last week – the lowest weekly amount since the programme started in early May. In the first week, it had bought €16.5bn.
ECB policymakers have hinted that the programme would be scaled back significantly. But the message from the ECB’s governing council is that this is a sign of strength, not weakness. Athanasios Orphanides, central bank governor of Cyprus, told a press conference in Nicosia that eurozone government bond spreads would ease as confidence in its economy and banking system returned. “I personally feel happy that the programme didn’t have to be activated to the same degree as earlier,” he said.
As a strategy, such chastity could, arguably, prove as effective in rebuilding financial market optimism as doing the opposite: that is, buying on a large scale and trumpeting its activism, which might have been the instinct of other central banks. Certainly, it fits with the emphasis Jean-Claude Trichet, ECB president, has recently placed on the ECB acting as an anchor of stability. Read more
How is the European Central Bank judging the success of its eurozone government bond purchases? The programme. launched at the height of the eurozone debt crisis in May, has been particularly controversial in Germany, and Jean-Claude Trichet, ECB president, pointed out on Thursday that the scale of purchases – concentrated on the bonds of southern European countries – has been on a downward trend ever since it started.
Mr Trichet made the same point at the ”ECB watchers” conference in Frankfurt this morning (an annual get together in which ECB policymakers are put on the spot by analysts, bankers etc). To me, that suggested the ECB would love to be able to run the programme down even further, and could soon stop buying any bonds at all. Read more
A Greek former European Commissioner has accused the country’s central bank of encouraging naked short-selling of Greek bonds by altering the regulations on its electronic bond trading platform last year. Vasso Papandreou, a senior deputy in the governing socialist party, made the charges on Wednesday in a written question to parliament.
The six-page question addressed to Mr Papaconstantinou set out details of measures taken by the central bank last year that appeared to facilitate naked shorting. First, the HDAT bond settlement period was extended from t+3 to t+10. Second, the central bank abolished penalties for investors who did not deliver a bond on the settlement date, in a move that allowed failed transactions to be continuously recycled. Read more
Spain came close to its first debt auction failure on Tuesday, highlighting the funding problems for weaker eurozone economies.
The government’s difficulties in selling €6.44bn ($7.96bn) in one-year and 18-month bills sparked worries over its 10-year debt auction on Thursday. Read more
About €35bn. That is a rough estimate of eurozone government bond purchases by European central banks since Monday.
Spreads between peripheral countries’ debt and bunds have been narrowing, as dealers report strong purchases of Portuguese, Irish, Greek and Spanish bonds. Maturities are reported at up to 10 years and lot sizes are €25m – €50m. Read more