ECB fails by $ 97.4 b to fully offset government bond buys

Wednesday, 29 December 2010 00:07 - - {{hitsCtrl.values.hits}}

LONDON (Reuters) - The European Central Bank failed to attract the 73.5 billion euros ($97.4 billion) from banks on Tuesday needed to offset its seven-month run of euro zone government bond purchases, instead managing to draw just over 60 billion.

The pace of the ECB’s government bond purchases picked up last week as the bank spent 1.121 billion euros, reflecting its continuing efforts to calm euro zone debt markets.

The central bank takes seven-day deposits from commercial banks on a weekly basis to offset its spending, but the failure to fully sterilise the purchases is likely to reflect the fact banks are keeping hold of their funding around the traditionally tense year-end period.

The ECB paid a weighted average interest rate of 0.66 percent on funds deposited by banks, compared with 0.42 percent last week.

A total of 41 banks offered up funds. Last week 44 banks offered up 81.024 billion euros as the ECB sought to drain 72.5 billion euros.

The ECB can buy government and corporate bonds under its purchase programme but has not revealed how much it can spend or for how long it intends to buy them.

Last week’s 1.121 billion euros worth of purchases was double the amount spent by the bank the previous week but still just a fraction of levels reached shortly after the programme was introduced in May.

Analysts believe the bank is concentrating its purchases almost exclusively on the government debt of euro zone troublespots Greece, Ireland and Portugal.