ECB buys Irish debt as bonds tumble
The European Central Bank bought Irish government bonds today, according to three traders with knowledge of the transactions.
The ECB purchased 10-year bonds, the traders said under condition of anonymity because the deals are confidential. A central bank spokesman in Frankfurt declined to comment.
Irish 10-year bonds slid for an eighth day, the longest run of declines since January 2009.
The yield on the securities jumped 23 basis points to 7.79pc as of 11:52am. The extra yield investors demand to hold the debt instead of German bunds rose to a record 520 basis points.
Ireland faces a “messy” four weeks as the Government prepares its 2011 budget and tries to reassure investors, Erik Nielsen, Goldman Sachs chief European economist, said in a report.
There is a “real risk” that the Government won’t be able to get the budget on December 7 passed, Nielsen said in the note, dated yesterday.
Still, Ireland is “fully funded through mid- 2011, so we are not talking about an imminent liquidity crisis.”
Credit-default swaps on Irish sovereign debt climbed 10.5 basis points to a record 570.5, according to data provider CMA.
The ECB’s bond-buying program differs from so-called quantitative easing policies pursued by the Federal Reserve and the Bank of England because the central bank mops up the liquidity created by the purchases, meaning the net effect on the money supply is neutral.
The ECB began the program on May 10 to stabilise markets rocked by the region’s sovereign-debt crisis.
The purchases were part of a European Union-led push to rescue the euro, which fell to a four-year low on June 7 after Greece’s near default raised concern that some nations in the region would struggle to finance their budget deficits.