Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
That didn’t take long did it? ECB Executive Board member Benoit Coeure was out on the wires this morning discussing the ECB’s ability to buy Spanish bonds on the secondary market – something that was once “a solution” (middle of last year) until they needed a bigger bazooka (LTRO). With an oversold market, soothing words are good enough but being pragmatic about it, the ECB would have to undertake massive purchases of the debt to make a serious dent. But as it has been the past 4 years, it’s all about intervention and trying to guess when it happens. While Draghi has denied anymore LTRO is coming, if things get bad enough – you know more is headed this way. But it’s nothing more than a band aid – stuffing banks with ever more sovereign debt is just a stop gap.
As for the market, we’re predictably running up to the 50 day moving average in the early going (1373).
- Markets are watching closely for any signs that a rise in Spanish bond yields back above 6 percent may prompt a change in the ECB’srhetoric after policymakers in recent weeks underlined it was now up to governments to deal with the crisis, not the bank.
- Coeure, the ECB board member in charge of market operations, said the central bank still had the Securities Market program (SMP) in place allowing it to purchase debt of euro zone nations, should the need arise.
- Referring to Spain, where sovereign debt yields have spiked amid concerns over the government’s ability to cut its deficit, Coeure said: “The political will is there, which makes me think that what is happening at the moment in the market does not reflect the fundamentals. There is no reason why the situation does not normalize in Spain as well.”
- “We have an instrument for intervention, the SMP, which has not been used recently but which exists.”
- His comments appeared to open the door to the ECB reactivating its bond-buying program — a policy option which would meet strong resistance from the Bundesbank and other ECB policymakers from the euro zone’s healthier “core” economies. The ECB left the program unused for the seventh time in eight weeks last week.
- Coeure said that the ECB’s three-year liquidity operations (LTRO) in December and February had helped normalize market conditions, which banks and governments should take advantage of to press ahead with reform.
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