(BN) ECB Halts Bond-Buying Pause With Purchases of Portuguese Notes

Posted by on Feb 29, 2012 in Uncategorized | No Comments

Non central bank bond holders are being “primed” or subordinated, however you want to look at it.  No wonder Portuguese bonds are being taken to the woodshed




ECB Halts Bond-Buying Pause With Purchases of Portuguese Notes
2012-02-29 15:56:54.65 GMT
By Emma Charlton
     Feb. 29 (Bloomberg) — The European Central Bank was said
to purchase government bonds for the first time in two weeks,
buying short-dated Portuguese securities after they
underperformed euro-area peers.
     Portugal’s longer-dated debt slid, with the price of 10-
year bonds falling to less than 50 percent of face value for the
first time in almost a month. The ECB’s purchases were small,
according to two people with knowledge of the transactions, who
declined to be identified because the trades are confidential. A
spokesman for the ECB declined to comment.
     “It is significant that the ECB is back in the market
after a pause, I guess they had to do something given the scale
of the move today,” said Eric Wand, a fixed-income strategist
at Lloyds Bank Corporate Markets in London. “Investors still
seem to be slightly wary of Portugal and a lot of that is to do
with the fact that there’s still concern it won’t be able to
meet its targets and avoid further official assistance.”
     Portugal’s two-year note yields were four basis points
lower at 12.76 percent at 3:46 p.m. London time after rising as
much as 37 basis points to 13.18 percent. The 5.45 percent note
maturing in September 2013 advanced 0.1, or 1 euro per 1,000-
euro ($1,340) face amount to 90.18.
     Ten-year yields surged as much as 89 basis points to 13.91
percent, the biggest intra-day move since Jan. 30. The price
dropped to as low as 49.735 cents on the euro.


                       Benefits of Lending


     Portugal’s two- and 10-year yields have held above 10
percent even as securities from other high debt and deficit
nations rallied after the ECB offered financial institutions
unlimited three-year loans.
     “The benefits of the ECB lending seem to be largely being
channeled into Italy and Spain, which are better-perceived
credits,” Wand said.
     The Frankfurt-based central bank agreed to lend 800
financial institutions 529.5 billion euros through a second,
three-year longer-term refinancing operation today. That was
more than the 470 billion-euro median of 28 estimates in a
Bloomberg survey  and the 489 billion euros taken up in a
December operation.
     The ECB said two days ago it hasn’t bought any government
bonds for two straight weeks, the first pause in its debt-
purchase program since August. The purchases have dwindled since
the central bank funneled cash into the banking sector via its
three-year longer-term refinancing operation.


                         Program ‘on Hold’


     “This program is more or less on hold,” ECB Governing
Council member Ewald Nowotny said on Feb. 27 in London. There is
a “clear policy line” of keeping it “in reserve” while
“there is not an intention of using it,” he said.
     Portuguese Prime Minister Pedro Passos Coelho said
yesterday he has no indication that the government will need new
measures to meet targets in its financial aid program.
International auditors said separately that more efforts are
needed in some areas.
     “Portugal will likely need to negotiate a new bailout
package later this year, as they will not be able to tap the
financial market at the current level of yields,” said
Alessandro Giansanti, a senior rates strategist at ING Groep NV
in Amsterdam. “The ECB will need to buy a huge amount of bonds
to have a meaningful effect.”
     Portuguese Finance Minister Vitor Gaspar said yesterday the
country’s return to markets in 2013 is a “difficult task.”
Moritz Kraemer, head of sovereign ratings at Standard & Poor’s,
said the terms of Greece’s debt restructuring may make it harder
for other indebted euro nations such as Portugal to raise
     Coelho is cutting spending and raising taxes to meet the
terms of a 78 billion-euro aid plan. The International Monetary
Fund, the European Commission and the ECB said yesterday that
the economy “will continue to face headwinds” and that the
pace of structural reforms must be “stepped up.”


For Related News and Information:
European Debt Crisis: EXT4 <GO>
Top Fixed-Income News: TOP BON <GO>
Bond Yield Forecasts: BYFC <GO>
Top Portuguese news: TOP PT <GO>


–With assistance from David Goodman in London. Editors: Paul
Dobson, Nicholas Reynolds


To contact the reporter on this story:
Emma Charlton in London at +44-20-7392-0427 or


To contact the editor responsible for this story:
Daniel Tilles at +44-20-7673-2649 or