Bank Participation Interest In ECB's €40.5 Billion Weekly Sterilization Operation Drops To New Lows

This week's shadow QE at the ECB amounts to €40.5 billion: first the ECB buys up sovereign bonds in the secondary market, then it pretends to absorb the provided liquidity in a variable-rate tender operation, with the resulting fixed-term deposits applicable as ECB collateral, in essence doing nothing to moderate liquidity gluts. This follows prior such operations of €35 billion, €26.5 billion, and €16.5 billion. The announced tender results indicate an ongoing decline in the appetite for liquidity extraction: only 64 bidders submitted bids for €75.6 billion, a 1.86x Bid To Cover, with an allotted rate of 0.31%.This compares to the prior auction which closed at 0.28%, and a 2.1x Bid To Cover, with 68 banks participating. Europe's banks are becoming increasingly reluctant to play even this charade of a liquidity withdrawal game.

More from the ECB:

As announced by the Governing Council on 10 May 2010, the ECB will conduct specific operations in order to re-absorb the liquidity injected through the Securities Markets Programme. In this regard, the ECB will carry out a quick tender on 08 June at 11.30 in order to collect one-week fixed-term deposits with settlement day on 09 June. A variable rate tender with a maximum bid rate of 1.00% will be applied and the ECB intends to absorb an amount of EUR 40.5 billion. The latter corresponds to the size of the Securities Markets Programme, taking into account transactions with settlement at or before Friday 04 June. The benchmark allotment amount in MROs takes into account the liquidity effect of non standard measures, assuming an unchanged size of the Securities Markets Programme and full sterilisation of this amount via the above mentioned liquidity-absorbing operation. Fixed term deposits held with the Eurosystem are eligible as collateral for the Eurosystem's credit operations. The ECB intends to carry out another liquidity-absorbing operation next week.

At this rate, we may be looking at a BTC below 1 in the bank's sterilization operation in under a month. What happens next is anyone's guess.

Comments

[Bruce Krasting]

So they bought E40b of crud bonds last week. The guy from GS thought it might be only 8b. Big difference. Shows they know nothing....

[mephisto]

What happens next is anyone's guess.

True. How will the market react when a sterilisation operation that everyone involved knows is just a head fake, fails? Oh man this market is tough, my textbooks dont really cover a situation this fucked up...... but I guess I'm not buying Euros on the news.

[London Dude Trader]

I wonder which economist first came up with this absurd concept of "sterilization."

Must have been someone belonging to the same school of thought as the fuckers who invented and then recycled the much-hated "greenshoots" term.  

[Double down]

Same guy who came up with "immunization":)

[BlackBeard]

I kinda like the word.  I strongly believe that we should sterilize our current crop of politicians and central bankers.

[youngandhealthy]

ZH...what do you mean....?

"....

then it pretends to absorb the provided liquidity in a variable-rate tender operation, with the resulting fixed-term deposits applicable as ECB collateral, in essence doing nothing to moderate liquidity gluts

 ..."

Money is withdrawn @ 40Bn...and I argue no one is as stupid as using the 1 week deposits as collateral for MRO's with a fixed rate of 1% when they get just 0,31% for the absorber