ECB likely stepped up bond-buying program: Reuters poll

Mon Nov 7, 2011 10:43am EST
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BANGALORE (Reuters) - The European Central Bank probably stepped up its bond-buying program, spending around 5.3 billion euros ($7.3 billion) on peripheral euro zone debt last week to help calm markets and lower bond yields, a Reuters poll showed on Monday.

Conducted on a day where Italian borrowing costs hit a record euro-era high, the poll of 18 money market traders showed the ECB was thought to have increased its purchases from 4 billion euros the previous week.

That would take the cumulative amount spent on its Securities Market Programme to 173.5 billion.

Under its new president Mario Draghi, the ECB unexpectedly cut benchmark interest rates last week by 25 basis points, helping push key interbank rates lower.

Key three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, sank to a five-month low on Monday at 1.476 percent from a fixing of 1.488 percent on Friday.

But with the Greek debt crisis raging on and Italian yields pushing yield limits that prompted other peripheral euro zone nations to seek bailouts, money markets are still a long way away from normalizing.

"The situation as it is now is the worst possible in the short end," said a euro money market trader.

"Almost everything is going back to the deposit facility and only small amounts going around on interbank cash. It can't worsen from this situation because the next step is the market being blocked completely."

Data from the ECB shows banks deposited 288 billion euros with the central bank on Friday, the highest this year.   Continued...