ECB buys bonds to avert crash
Source: Agencies |
August 9, 2011, Tuesday
|
Print Edition
Print Edition
THE European Central Bank stepped into bond markets yesterday, backing up a pledge to support Spain and Italy with the aim of averting financial meltdown in the eurozone, while the G7 and G20 offered soothing words to investors shaken by a historic downgrade of the United States debt rating.
Spanish and Italian bond yields fell as traders said the ECB was broadening its bond-buying program to include debt issued by the bloc's third- and fourth-biggest economies, in the latest effort to staunch Europe's sovereign debt crisis.
"They're doing 20 to 25 million (euro) clips and spreading it around the market," said a trader. "We expect them to do billions today."
Equity markets that had been in headlong retreat in Asia turned positive in Europe as G20 finance chiefs and central bankers pledged to take all necessary measures to support financial stability, growth and liquidity.
"It does seem policymakers are swinging into action," said Shane Oliver, head of investment strategy at AMP Capital Investors, one of Australia's biggest fund managers.
"A move to now start buying Italian bonds could be very positive in helping to calm fears about a further escalation of European debt problems," said Oliver, speaking before the ECB made its move in the markets.
"Speculators will now have to think twice about selling or shorting Italian and Spanish bonds, knowing the ECB will be acting against them."
Spreads of Italian and Spanish bonds over German debt narrowed sharply, credit default swaps fell and Spanish and Italian stocks jumped more than 3 percent. The euro also extended gains.
It marked a reversal of mood from the fear that had gripped Asian markets earlier in the day, when similar pledges in a G7 statement had failed to calm investors who drove safe haven gold to a record atop US$1,715 an ounce, while share markets were again colored red.
Investors also turned their attention to what the Federal Reserve might say at its policy meeting today, fuelling speculation it might consider a third round of quantitative easing to resuscitate the US economy.
After a rare Sunday night conference call, the ECB welcomed announcements by Italy and Spain of new deficit cutting measures and economic reforms, as well as a Franco-German pledge that the eurozone's rescue fund will take responsibility for bond-buying once it is operational, probably in October.
The central bank had been reluctant to step up its buying of distressed debt, fearing it would be seen as a blank check to spendthrift governments.
Meanwhile, the G7 - the United States, Britain, Canada, France, Germany, Italy and Japan - said it would take joint action if needed in foreign exchange markets as "disorderly movements ... have adverse effects for economic and financial stability."
The G20 communique followed shortly after European markets opened.
Spanish and Italian bond yields fell as traders said the ECB was broadening its bond-buying program to include debt issued by the bloc's third- and fourth-biggest economies, in the latest effort to staunch Europe's sovereign debt crisis.
"They're doing 20 to 25 million (euro) clips and spreading it around the market," said a trader. "We expect them to do billions today."
Equity markets that had been in headlong retreat in Asia turned positive in Europe as G20 finance chiefs and central bankers pledged to take all necessary measures to support financial stability, growth and liquidity.
"It does seem policymakers are swinging into action," said Shane Oliver, head of investment strategy at AMP Capital Investors, one of Australia's biggest fund managers.
"A move to now start buying Italian bonds could be very positive in helping to calm fears about a further escalation of European debt problems," said Oliver, speaking before the ECB made its move in the markets.
"Speculators will now have to think twice about selling or shorting Italian and Spanish bonds, knowing the ECB will be acting against them."
Spreads of Italian and Spanish bonds over German debt narrowed sharply, credit default swaps fell and Spanish and Italian stocks jumped more than 3 percent. The euro also extended gains.
It marked a reversal of mood from the fear that had gripped Asian markets earlier in the day, when similar pledges in a G7 statement had failed to calm investors who drove safe haven gold to a record atop US$1,715 an ounce, while share markets were again colored red.
Investors also turned their attention to what the Federal Reserve might say at its policy meeting today, fuelling speculation it might consider a third round of quantitative easing to resuscitate the US economy.
After a rare Sunday night conference call, the ECB welcomed announcements by Italy and Spain of new deficit cutting measures and economic reforms, as well as a Franco-German pledge that the eurozone's rescue fund will take responsibility for bond-buying once it is operational, probably in October.
The central bank had been reluctant to step up its buying of distressed debt, fearing it would be seen as a blank check to spendthrift governments.
Meanwhile, the G7 - the United States, Britain, Canada, France, Germany, Italy and Japan - said it would take joint action if needed in foreign exchange markets as "disorderly movements ... have adverse effects for economic and financial stability."
The G20 communique followed shortly after European markets opened.
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