Friday, August 05, 2011

ECB Intervenes in Bond Markets, More to Follow

Following the global market route, a reportedly reluctant ECB has started intervening in Europe's bond markets.

From Bloomberg,

European Central Bank President Jean- Claude Trichet may be forced to step up his fight against the sovereign debt crisis after a resumption of bond purchases yesterday failed to halt a rout in Italy and Spain.

Over opposition from Germany’s Bundesbank, Trichet yesterday sent the ECB back into bond markets as yields on Italian and Spanish yields soared, threatening the ability of the euro region’s third- and fourth-largest economies to borrow. As the sell-off continued, traders said the ECB purchased only Irish and Portuguese securities, suggesting the central bank is reluctant to put up the funds needed to tame a crisis it says governments are responsible for fixing.

“The ECB is being dragged unwillingly back to the table, having tried originally to palm off responsibility for restructuring the euro zone to governments,” said Peter Dixon, an economist at Commerzbank AG in London. “If the ECB is serious about playing its part in holding the euro zone together, then it’s going to have to spend a considerable sum.”

The ECB, which ceased buying bonds four months ago, was forced back into action after governments failed to convince investors that a package of new measures agreed to last month will prevent the crisis from spreading. The ECB may be hesitant to intervene in Italian and Spanish markets, which according to Bloomberg data have a combined 2.2 trillion euros ($3.1 trillion) worth of outstanding bonds, for fear of starting an engagement it can’t get out of.

As expected, once the distress on the marketplace becomes pronounced, global central banks will set aside political squabbling to give way for more inflationism. [All these meant to save the cartelized global banking system]

Yet if this episode of bloodbath continues, expect the ECB to expand its purchases to include Italian and Spanish bonds. That’s the ECB’s version of QE (asset purchases from money printing) now at work.

So you have 3 major central banks intervening in the financial marketplace over the past 48 hours, the Swiss, Japan (yesterday’s record 4 trillion yen or US $50.6 billion at the forex market) and now the ECB.

Global central bankers appear to be synchronizing their efforts at an escalating scale. Expect even more.

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