The ECB shield has officially gone off. According to the latest published data from the ECB, the Frankfurt institution has spent billions of euros in bond purchases to protect Italy and other peripheral members of the eurozone, since they activated their line of re-investment for maturing bonds. under the PEPP about a month ago to keep speculators at bay.
Data released on Tuesday indicates significant use of funds released from maturing debt in the pandemic portfolio related to the PEPP (the program launched at the start of the pandemic).
Statistics, available on a bimonthly basis only, show that net holdings in German, French and Dutch bonds fell by 18.9 billion euros until July. While net debt purchases from Italy, Spain, Portugal and Greece were equal to 17.3 billion of Euro.
Here is a summary of the tweet for the main countries of the euro area:
The numbers are the first concrete data that reveal the intervention of the Frankfurt institution on the debt markets after the surge in bond yields in June that forced the president of the ECB, Christine Lagarde, to convene an emergency meeting in which the several board members agreed on a speech to respond to the market. A response, for example, to the pressure seen on Italian government bonds, with the BTP-Bund spread exceeding the threshold of 250 basis points. “The fundamentals of the Italian economy do not justify a spread above 200 points, but below 150”, underlined the governor of the Bank of Italy, Ignazio Visco.
“It seems that the ECB has already activated its first line of defense”, he has declared Christopher Rieger, Commerzbank analyst. “This is by far the largest reduction in German holdings since the ECB began quantitative easing, and more than we expected. “
As a first step, policy makers at the Frankfurt institution decided to be flexible in reinvesting maturing securities as part of their asset purchase program from 1,66 trillion euros under the pandemic program known as PEPP.
To better organize the purchase of bonds, the ECB staff divided the euro area into three categories: donors including Germany, France and the Netherlands, recipients consisting of Italy, Greece, Spain and Portugal and so-called neutral.
President Lagarde described repurchase flexibility as the ECB’s first defense against market volatility that threatens the transmission of monetary policy, with a new debt-buying instrument as a back-up should more massive intervention be needed.
Italy remains in the spotlight of international investors first for the sudden fall of the Draghi government and now for the vote on 25 September, which could lead to a new government very keen to increase public spending.