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It's Confirmed: ECB "Forced" To Buy Portuguese Bonds

Tyler Durden's picture


Earlier today we speculated that due to central planning goldilocks breaking down, and the corresponding downtick in the EURUSD, the minions of the ECB's royal palace in Frankfurt will be scrambling to pretend things are under control, and gobbling up Portuguese bonds. Sure enough, this has been confirmed. But even we had no clue to what degree the spin to "explain" the situtation would reach. According to the FT, the ECB was "forced" to buy Portugal bonds. FORCED. Because unless the ECB did what was expected of it (see global moral hazard), the convergence trade between reality and central planning may have finally generated record daily P&L. Luckily for all those who still have their heads shoved deep in the sand, the bank that Weber prudently told to go and do some anatomically impossible things to itself, was FORCED to bail out Portugal from the rough sea of reality yet again. Also, after an untarnished two week record of non-monetization, widely publicized by the ECB's favorite news rag, the ECB's SMP will once again be burdened with exposing that the beautiful dream of prancing European unicorns, purple skittles and rainbows is once again coming to an abrupt end.

From said rag:

The ECB was forced back into the market as Portugal’s cost of borrowing on 10-year debt jumped to a fresh euro-era high of 7.63 per cent, traders said. The ECB temporarily suspended its bond buying programme in the middle of last month.

European policymakers and investors say Portugal’s cost of borrowing for 10-year debt is unsustainable above 7 per cent amid warnings that Lisbon might struggle to refinance €9.4bn of maturing debt by the end of the second quarter

The ECB buying, which was in small amounts, reversed the move higher as yields fell back to 7.34 per cent.

Portugal’s first bond syndication in a year has also traded poorly in the secondary markets, exacerbating concerns. The five-year €3.5bn bond attracted strong demand when it was launched on Monday, but has subsequently seen selling from hedge funds.

“This is the trend Portuguese yields have been following since November,” said Filipe Silva, head of debt trading with Portugal’s Banco Carregosa. “If the ECB wasn’t in the market buying the price would be much higher.”

Sigh. And only yesterday we said: "And while everyone is now focused on what is going on with the Chinese
tightening regime (with expectations of two-three more liquidity
tightening steps over the next several months) with much speculating
over just how priced in all this is (not much if one looks as the Bombay
Sensex or even the SHCOMP for that matter), the real focal point should
once again be on Europe.
" That was fast.

We urge everyone to read our post on why things in Europe are going to get very ugly in T-minus three weeks: "Will March Be This Year's Cruelest Month?"


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Thu, 02/10/2011 - 11:09 | Link to Comment papaswamp
papaswamp's picture

..and elsewhere in the world....Boom! 32 killed in suicide bombing in Pakistan. That country is ready to fall apart any second.


Thu, 02/10/2011 - 11:13 | Link to Comment Ragnarok
Ragnarok's picture

Sell out of the money calls on INP?

Thu, 02/10/2011 - 11:14 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

Who cares?  Time to gun BIDU and CMG!

Thu, 02/10/2011 - 14:07 | Link to Comment firstdivision
firstdivision's picture

If you think those get jammed, look at BKI.  I've been playing that one the past few weeks. 

Thu, 02/10/2011 - 11:15 | Link to Comment topcallingtroll
topcallingtroll's picture

Everyone knew the ecb was all talk once it was clear that germany would not allow monetary disunion. The ecb will monetize anything they have to so that portuguese and greeks can all retire in their fifties.

Thu, 02/10/2011 - 11:16 | Link to Comment gwar5
gwar5's picture

I have not forgotten Europe, never will.

It's the current epicenter, prologue to a USA implosion.

The USA will create the biggest economic crater.

How Europe handles it is a preview of what's to come.


Thu, 02/10/2011 - 11:17 | Link to Comment JW n FL
JW n FL's picture

Front Focal Plane Bitchez!!!

Thu, 02/10/2011 - 11:18 | Link to Comment papaswamp
papaswamp's picture

And the Germans get stuck with the bill. No way Portugal can repay. Perhaps they will get a modified Greek deal and can 'defer' payment for 50 yrs.

Thu, 02/10/2011 - 11:22 | Link to Comment SashaBelov
SashaBelov's picture

And markets amost green again... without POMO, without reasons... someone just dont let correction to happen - whenever its -0.5% there occures massive buying

Thu, 02/10/2011 - 11:29 | Link to Comment Orly
Orly's picture

I think they are keying off of 4X.  Whenever a strong sell signal is generated for the EURUSD, the markets get ramped, SPX included.  So far, they have had the advantage of surprise but their tactics are being found out and it won't be long before their tactics are buffered successfully.

Then the EUR is gonna get blistered.  The longer they hold it up, the harder and farther it is going to crash.


I just don't get it.


At all.

Thu, 02/10/2011 - 11:26 | Link to Comment Sudden Debt
Sudden Debt's picture

but China promised to...

...they said all was well...

Oh dear...


Just imagine that the newspapers would be reporting thing like this.

Oké, Oké, they'll never do that, but just imagine there where still some real reporters left...

Thu, 02/10/2011 - 11:32 | Link to Comment raya123
raya123's picture

This euro drop WILL drag stocks down through March.

Thu, 02/10/2011 - 11:35 | Link to Comment Racer
Racer's picture

and PPT forced to buy AAPL to rescue the world when no POMO and the market was actually going down!

Thu, 02/10/2011 - 11:36 | Link to Comment MGA_1
MGA_1's picture

So.. is a billion dollars just a rounding error now?

Thu, 02/10/2011 - 11:39 | Link to Comment Sudden Debt
Sudden Debt's picture

It was all forseen.

Belgium bond sales where even done early because they knew demand was going to puddy in.

Thu, 02/10/2011 - 11:49 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I really don't get Zero hedges aversion to a central bank buying goverment bonds - what else is a central bank for if credit money collapses.

Most of the  extra currency created withen the Eurozone during this disastrous decade was not Goverment debt - the ECB needs to accept reality and use high powered money to inflate out of this commercial bank credit mess or else there will be little or no Euros to transact on a regular basis - destroying all productive economic activity.

The choice is either to keep printing Gov debt or recognize reality on the euro balance sheet - there is no in between.

Thu, 02/10/2011 - 11:53 | Link to Comment Sophist Economicus
Sophist Economicus's picture

Not speaking for ZH, but what if:

CBs didn't buy government debt, then those governments would be faced with really tough choices.   Given the scarcity of credit, only truely productive activities would be funded -- most likely private sector investments

Thu, 02/10/2011 - 12:14 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Did you ever ask yourself why global wage and tax arbitrage is so important to the multinationals who are cared for by the CBs ?

The CBs have created a system where debt currency is extremely overvalued relative to natural resourses - the mechanism for this was Volcker's decision to decapitalize American industry in 1980 by setting a artificial yield on the dollar rather then a gold standard - this made industry unproductive in the US against the return on the dollar - exporting manufacturing to Asia and elsewhere , in Europe the ECB balance sheet is only a small fraction of the Eurozone's liabilties creating a environment where Germany has extensive trade relations with members outside the euro zone - they may decide to do a Volcker on the Euro periphery by engaging in another decapitalisation exercise where even more manufacturing goes to Asia.

This destruction of real wealth may sustain the euro for a period before Europe's physical investments age into obsolescence - creating more destruction.

The entire global trade relationship is based on a false premise that the capital they dig up from the ground is infinite and is not expressed as a loss.

The honest thing to do is to hyper inflate out of this nightmare before more damage is done.

If you believe the dollar is money a central bank should buy treasuries again and again and again , if you believe Gold is money then the ECB should increase its balance sheet until most or all of Europes currency is on the Euro balance sheet.

Thu, 02/10/2011 - 13:43 | Link to Comment Sophist Economicus
Sophist Economicus's picture

TDOC, This is gonna get really hard to do in this type of forum.   BUt, I think we are starting in the middle of an issue.   Gold is not money to me - it is a store of value, of course, it can also act as money.   Dollars and other FIATS, as they exist TODAY, are great tools for circulation but terrible surrogates of wealth holding - since they have no ties to anything and are being created and destroyed willy-nilly.    Central banks are, to me, destructive entities that should play NO ROLE in any economic transactions - they are a contrivance of governments and therefore anything they do, IMHO, is useless, destructive and arbitrary.

Savings, and only savings, embodies true wealth or capital.   Hyper inflation is a destroyer of savings and therefore capital and wealth, if you are the poor bastard holding the fiat that will be hyper-inflated.   Sitting around trying to protect your wealth (usually stemming from converting one's LIFE-OF-LABOR) from these CB goons, as they play these games is another useless exercise that we must play to prevent our past-hours-of-sweat that we've squirrelled away from being destroyed.

SO, I guess, I don't care about the situations these CBs are in and what these governments need to contend with.    There are no good answers - but I will side with whatever is less painful for the savers -- they create the only REAL capital.  With that as my underlying belief, I guess I don't care if governments implode and deflation runs rampant for a while.   That will make saved capital 'worth more' and will clean the system from these bizzare processes we see today....


Sorry about the ramble


Thu, 02/10/2011 - 14:11 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Yes I understand your postion - I would never have started from here - in my country during the "boom" they were increasing credit 10 / 20 % a year ! - but central bank currency is a different beast from commercial bank credit - it is much closer to real money as it does not need a yield.

I use the term central banks as they are hybrid vehicles - I would much prefer countries treasuries preforming this function but they don't.

This mess is at least 30 -  40 years in the making so as you say there is no good answers to such monetory absurdity over the last few decades.

Thu, 02/10/2011 - 15:07 | Link to Comment Sophist Economicus
Sophist Economicus's picture

Agreed on all accounts


BTW, If you are from County Cork, may I say that it is beautiful part of the world.   

Thu, 02/10/2011 - 11:48 | Link to Comment Sophist Economicus
Sophist Economicus's picture

"the bank that Weber prudently told to go and do some anatomically impossible things to itself"


Not sure about this, rumor has it that the ECB is hermaphroditic...

Thu, 02/10/2011 - 11:48 | Link to Comment IAMAM
IAMAM's picture

I think that is it for the EURO, no more rallies, I think China is busy buying gold.

bye bye EURO

Thu, 02/10/2011 - 12:59 | Link to Comment kentfinance
kentfinance's picture

IMHO that's just failed sov bond auction #1. not necessarily a trend but a good data point.

Thu, 02/10/2011 - 11:49 | Link to Comment Orly
Orly's picture

"...destroying all productive economic activity."

Some would say that those things are mutually exclusive and are, in fact, opposite sides of a coin.

Thu, 02/10/2011 - 13:17 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I am beginning to concede that the FOFOA meme is essentially correct in using paper as a medium of exchange at least in a transition phase.

Ireland is a country where the old have deposits and the young are leaving - I am witnessing a deflation up close and personnel - and it is neither nice nor sustainable to keep a artificial value to debt which is hoarded to sustain value.

Even if oil doubled or tripled in value ,to sustain commerce we could adjust if we could effeciently use all our resourses.

Thu, 02/10/2011 - 13:34 | Link to Comment jmc8888
jmc8888's picture

I guess it's not all 'rainbow brite' in fantasy land

Maybe all the Eurpoean Care Bears need is to hold Sir Hugs a lot

Forget Glass-Steagall, we have a plush 80's toys to hold onto as we run around like a kid in Gideon (4000...yes outer limits, season 7, ep 1) Gono Bernanke's printing shop. 


Thu, 02/10/2011 - 13:39 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

Fuck it, Im staying long euro…this thing smacks of a witch hunt. Nothing has changed in Portugal since the last auction, yet today they feel the need to dump what they bought in a hurry. Each time they bring the ECB into play it cranks up the tension a little bit more. Sorry, im going with the printers on this one.

Thu, 02/10/2011 - 15:34 | Link to Comment reTARD
reTARD's picture

And Congress is forcing the Fed to buy Treasuries. Or is it vice versa as well. Congress and the Fed are the same.

Who will be first to fail? Euro or Dollar?

Thu, 02/10/2011 - 15:49 | Link to Comment Spigot
Spigot's picture

Makes this obviously a "contest" between the financial elites who are in control and the governmental "authorities", who are the other end of the same stick, only the "not clean" end.

Every day it becomes more and more obvious that the top tier of human power is truly a criminal racket who knows no check or balance and is progressively careless about doing its dirty business in broad daylight.

Thu, 02/10/2011 - 20:14 | Link to Comment Buck Johnson
Buck Johnson's picture

Europe is getting hotter.

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