BackECB said to start asset purchase programme with French, Spanish debt
The central bank is said to have acquired short-dated French notes from Societe Generale and BNP Paribas as well as Spanish securities from other lenders
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The European Central Bank (ECB) bought covered bonds for the first time since President Mario Draghi unveiled an asset purchase programme last month.
The ECB acquired short-dated French notes from Societe Generale SA and BNP Paribas SA as well as Spanish securities from other lenders, according to two people familiar with the matter who asked not to be identified because the information is private. Draghi said he intends to expand the bank’s balance sheet by as much as €1 trillion (over ₹ 78 trillion) to stave off deflation in the euro area.
Policymakers are under pressure to take action as euro-area inflation slowed to 0.3% in September and the International Monetary Fund (IMF) said the region has as much as a 40% chance of entering its third recession since 2008. Growth will reach 1.3% next year, slower than he 1.5% pace predicted in July, after a 0.8% gain this year, the IMF said on 7 October.
“From today we will begin to know how aggressive the ECB will be in bidding for bonds," said Agustin Martin, head of European credit research at Banco Bilbao Vizcaya Argentaria SA in London.
European mortgages
An ECB spokesman confirmed that purchases under the bank’s third covered-bond programme started on Monday. Officials at Societe Generale and BNP weren’t immediately available to comment on the transactions.
The 250-year-old covered bond market helps fund Europe’s mortgage industry and the notes have historically been attractive to investors because they’re guaranteed by the issuer and backed by a pool of assets. Europe’s market for covered bonds shrank for the first time in at least a decade last year and will decline further in 2014 and 2015, according to the European Covered Bond Council.
Covered-bond purchases are the latest addition to the ECB’s medley of unconventional tools that also includes targeted long-term loans to banks and a negative deposit rate. The central bank will also start buying asset-backed securities before the end of the year.
The ECB is probably making its first purchases from the existing stock of covered securities because there are no new issues currently being marketed that meet its criteria, said Michael Spies, a covered bond strategist at Citigroup Inc. in Frankfurt, who spoke before the purchases took place on Monday.
“The pipeline for primary market deals is not really full and those issuers which plan to tap the market in the nearer term are non-euro area banks," said Spies.
This will be the third time the ECB has created a programme to buy covered bonds, with previous purchases starting in July 2009 and November 2011. The bank’s first foray into the market was designed to improve financing after the collapse of Lehman Brothers Holdings Inc. and the second was to support lenders during Europe’s sovereign debt crisis. Bloomberg
Julie Miecamp in London, Fabio Benedetti-Valentini in Paris and Alessandro Speciale and Jana Randow in Frankfurt contributed to this story.
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