ECB Buys Another €4 Billion In Sovereign Debt; Is Another Failed Fixed Term Deposit Operation Coming Up?

Tyler Durden's picture

Last week, the ECB had a failed QE "sterilization" operation, when it was unable to cover the full €55 billion in previously purchased government debt via a Fixed Term Deposit operation, better known as a liquidity reacharound. That particular auction, which occurs every Tuesday, generated only €31.9 billion in bid side interest, or 0.6x BTC. The failure was largely attributed to the massive LTRO maturity the next day. Which is why everyone will be closely following tomorrow's most recent FTD operation. Even more so, since as the ECB just announced, in the prior weak the central bank bought an additional €4 billion in sovereign bonds as part of the Securities Markets Programme which is now at €59 billion. As the chart below shows, this indicates a steady buying interest of €4 billion per week for each of the past 4 weeks. On the other hand, as we have been expecting for a long time, with total bidding interest declining, while the total FTD amount rising each weak, the likelihood of ongoing failed auctions, and continued loss in European liquidity conference keeps going higher.

Full ECB release:

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 06 July at 11.30 in order to collect one-week fixed-term deposits with settlement day on 07 July. 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 59 billion.

The latter corresponds to the size of the Securities Markets Programme, taking into account transactions with settlement at or before Friday 02 July. 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.

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bugs_'s picture

"a quick tender"

hellboy's picture

TD, you should enjoy your holidays while they last...

EscapeKey's picture

While they last? Soon, we'll all have a lot of holiday.

hellboy's picture

i have a feeling that consensus here is that you'll be sitting in a bunker full of gold, eating tinned food while holding your gun to protect you wife and 8 children. not really the best holidays... disneyland is better!

papaswamp's picture

As they say...the hardest part of the zombie waiting for it to happen.


papaswamp's picture

strange double post event deleted for repetitiveness

Amsterdammer's picture

It is also commonly described in Europe

as 'sterilization', anyhow the mid-term problem

the Germans are dreading is a possible recapitalization

if the amount of 'illiquid' sovereigns purchased

were to balloon slowly

Thus there is a veil of mystery about these

sovereign bonds purchased, which, imho, does

very little to restore the lack of confidence

in most of the European Treasuries,i.e the initial




Temporalist's picture

I was watching Daryl Guppy when he said this on Europe Squawk Box:

Dow Repeats Great Depression Pattern: Charts Published: Monday, 5 Jul 2010 | 5:31 AM ET "The Dow Jones Industrial Average is repeating a pattern that appeared just before markets fell during the Great Depression, Daryl Guppy, CEO at, told CNBC Monday.

“Those who don’t remember history are doomed to repeat it…there was a head and shoulders pattern that developed before the Depression in 1929, then with the recovery in 1930 we had another head and shoulders pattern that preceded a fall in the market, and in the current Dow situation we see an exact repeat of that environment,” Guppy said."


He also said "the double dip is here."  Here is the video:


And  also from Europe Squawk Box about gold:

"Gold is a better investment than currencies or US Treasurys, Patrick Armstrong, managing partner at Armstrong Investment Managers, said. Central banks will monetize the governments' debt and inflation is likely, Armstrong said."

Paper CRUSHer's picture

What?Another failed transaction?........

...............Ker-Ching!......... man do I love that sound.

traderjoe's picture

The UK Independent is reporting that Hungary is asking for a second, stand-by, IMF bailout...

zhandax's picture

Tell me if I am reading this correctly through a July 4th hangover...The ECB bought everyone's bonds to keep the market from collapsing and now wants the banks to deposit funds to pay for the courtesy.  Last week, they failed to do so in the desired amount.  This begs the question of why.  It seems unlikely that it is because they have better alternatives.  Did the money go to make margin calls?  Or would it force the banks to unwind underwater positions and recognize the losses?

Djirk's picture

I hear the teabaggers are opposed to reacharounds.

zhandax's picture

The female teabaggers aren't....

TBT or not TBT's picture

Depends on what is being reached around to.

JLee2027's picture

You mean Tea Party or the Obamination version - teabaggers?

saulysw's picture

I may be missing something here, but isn't a failed auction (bid-to-cover <1) big, bad news?

zhandax's picture

In general, yes but filter it by consequence.  A failed auction to cover next week's interest payment has far greater consequences than a failed auction to drain liquidity.  Having your Visa card declined for dinner is an embarrassment.  Having your Visa card declined for your mortgage payment could mean game over.

TBT or not TBT's picture

This European liquidity crisis story-cum-ECB liquidity suction story has me wondering, each time Tyler posts the latest news about it, just what the hell this ought to portend for EURUSD over the next weeks and months???  

herry's picture

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