FRANKFURT (MNI) – The European Central Bank announced on Monday
that it had settled E7.986 billion worth of sovereign debt purchases in
the week ending November 18, up from E4.478 billion the previous week,
but lower than the E9.52 billion settled the week before.

Traders speculated that the ECB had boosted its debt purchases
after Italian 10-year bond yields spiked above 7%. While yields on
Italian paper have since come down, precisely because of the ECB’s
intervention, they remain close to red-flag levels. Spreads on Italian
10-year bond yields were last 13 basis points wider on the day at 516
basis points above the benchmark German Bund.

Speaking to reporters late last week, ECB Governing Council member
Josef Makuch stressed that the central bank “will do what is needed” to
address the crisis, though he declined to comment on whether that might
include a large-scale increase in its purchases of distressed sovereign
bonds.

However, other Council members with more clout, including
Bundesbank President Jens Weidmann, have sharply rejected calls for
greater ECB intervention. Weidmann said a significant ramp-up in bond
buying would be tantamount to monetizing government debt, which he
warned was illegal under EU rules.

The bank’s President Mario Draghi, though not as blunt as Weidmann,
has sought to dampen speculation of any quantum new leap for the ECB,
putting the onus on national governments to clean up their fiscal messes
while saying that t he central bank’s bond buying was limited in time
and in magnitude.

Taking into account the E131 million in bonds matured, the ECB
purchases settled last week bring the cumulative total still on the
bank’s balance sheet to E194.5 billion. As usual, the central bank said
it will seek to sterilize the entire amount through a quick tender to
collect one-week term deposits.

The deposit tender, to be held Monday at 1030 GMT/0530 ET, will be
conducted as a variable-rate operation with a maximum bid rate of 1.25%,
the ECB said. The fixed-term deposits can be used as collateral in the
Eurosystem’s credit operations.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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