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ECB Fails To Sterilize Bond Purchases For Second Time In A Month

Tyler Durden's picture


Back in November 2011, when the ECB failed to fully sterilize its weekly outstanding amount of bond purchases under its now defunct SMP program (replaced with the even more impotent OMT non-existent "bond buying" program), it caused a plunge in the Euro and sent European stocks reeling over fears what this may mean for European bank liquidity. This happened just as Europe was "turmoiling" and the ECB announced the flooding of the European banking system with hundreds of billions in excess liquidity via the collateral-soaking LTRO 1 and 2. A few hours ago, the very same thing happened after the ECB found only 109 bidders for today's weekly attempt to sterilize €184 billion in outstanding SMP holdings, and instead got bids for only €152.3 billion of the total leading to a €32 billion shortfall. This happened just a month after another failed ECB sterilization on November 26. The market barely noticed.

Why the completely muted response? Perhaps because it some ways it was expected, since as a result of accelerated LTRO repayments in recent weeks, excess cash in the Eurosystem is now at the lowest level in just about two years, which also means that banks are seen as preferring to hold on to money. In fact, according to IFR, excess liquidity is expected to drop from today's €171.5 billion to below €150 billion by year end and banks will naturally hold on to dear cash for window dressing purposes and for anything out of the ordinary.

Furthermore, earlier today the Eonia spread (June vs Feb forwards) turned the most negative in months, and certainly since the ECB's announcement of its refi rate cut in early November.

So if sterilization failures are also added to the New Normal, why should the ECB even pretend to be a prudent sterilizer of monetized bonds? If indeed the European liquidity is so low that finding €184 billion in the system becomes a problem, is this a harbinger that very soon the ECB will proceed with unsterilized monetizations, and is today merely a market test to see how risk responds to the second sterilization failure in a month.

Of course, if indeed that is the case, and Draghi is preparing to launch unsterilized monetizations, then suddenly Asmussen's recent departure makes far more sense.


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Tue, 12/17/2013 - 10:56 | Link to Comment Al Huxley
Al Huxley's picture

If you don't tell anybody, maybe nobody will notice and the stock party can carry on.

Tue, 12/17/2013 - 11:00 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture



...the ECB found only 109 bidders for today's weekly attempt to sterilize €184 billion in outstanding SMP holdings

Those that did not bid for these bonds do not understand the political capital invested in Europe.  They vastly underestimate what the Euro means for the Europeans, for the Euro area.

Tue, 12/17/2013 - 11:05 | Link to Comment LawsofPhysics
LawsofPhysics's picture

of the 109, how many were trading "bots" and how many were actually people?

Tue, 12/17/2013 - 12:35 | Link to Comment NotApplicable
NotApplicable's picture

And how many of them are front-running K-Hen?

Tue, 12/17/2013 - 12:22 | Link to Comment Non Passaran
Non Passaran's picture

The euro don't mean shit to "the Europeans".
The EU bureaucrats, bankster theirs, socialists and robbers care about it, but not much more than that.
Yah, I know, now I pretty much described all the Europeans...

Tue, 12/17/2013 - 13:24 | Link to Comment Ghordius
Ghordius's picture

sure. than explain why, when asked, some 60% of Greeks answer that they prefer to keep the EUR instead of switching to a new Drachma (which would be a socialist dream, btw). I could go on with various other countries, nevertheless Draghi is right: ZH in general does not understand well how things are perceived inside the eurozone

rember the endless Telegraph references? remember how even the British "Punk Economist" quipped:

"...Then more money has been lost in London betting on the (demise) of the EUR, than in almost any other trade...

...Because the British, in general, want the project to fail. and rather than being analytical, the British get (all...?) and emotional about europe. And rather than..."

has anybody here ever talked to the small and medium business that operate in the eurozone? what they think about the current setup? are you even aware of the fact that the breed is still existing, in the eurozone, while dwindling away in other currency zones? yet of course financial experts are often blind to those aspects of the economy which don't issue bonds and stocks

Tue, 12/17/2013 - 13:32 | Link to Comment Ghordius
Ghordius's picture

further, generally speaking the "The EU bureaucrats" hate the EUR. and lots of EU federalists do the same, including some ZH commentators like Bank-Guy-In-Brussels

They have the impression that the EUR could stop their integration towards their often quite ridiculous dream of a "United States of Europe"

imho their main issue is the eurozone's confederative setup, which is an unwelcome reminder of the confederative setup of the EU, which they desperately want to transform into a federative or unitary one

and this after even the French rejected in a referendum the idea of an european constitution, thus relegating the EU back to a treaty organization between sovereign countries

Wed, 12/18/2013 - 02:27 | Link to Comment german Wunderkind
german Wunderkind's picture

germany cant let the euro go, it would hurt way to much.

and without germany there will not be any big changes because the EU cant do shit without germany and the german block. 


Tue, 12/17/2013 - 10:58 | Link to Comment Tsar Pointless
Tsar Pointless's picture

Sterilize this.

Tue, 12/17/2013 - 11:15 | Link to Comment slotmouth
slotmouth's picture

Hepatitis outbreak at the ECB after everyone Draghi forgot to sterilize tattoo needles.  

Tue, 12/17/2013 - 11:03 | Link to Comment ChaosEquilibrium
ChaosEquilibrium's picture

Excellent.....Europe has no clothes and was always a mirage!

Until the Euro markets are disconnected from the FED ALGO 100% DOWCorrelation program....nothing happens!


Europe is going DOWN.....sooner than later.......and the World begins to tremble!

Tue, 12/17/2013 - 12:43 | Link to Comment SunRise
SunRise's picture

Yes, but they provide free tattoos that look like clothes.

Tue, 12/17/2013 - 11:04 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"Beating expectations", all the way down to the second dark age...

same as it ever was...

Tue, 12/17/2013 - 11:02 | Link to Comment starman
starman's picture

I sterilize my hands and dick before and after I go and come back from Europe.

Tue, 12/17/2013 - 11:06 | Link to Comment Let The Wurlitz...
Let The Wurlitzer Play's picture

I would like to know whou the idiots were that bought the $152b.  Bernanke maybe?


Tue, 12/17/2013 - 11:48 | Link to Comment Super Broccoli
Super Broccoli's picture

The ones already holding trillions of those shits and not in a mood to seem those assets being flushed down the toilet

Tue, 12/17/2013 - 12:38 | Link to Comment NotApplicable
NotApplicable's picture

Why YOU did!

By proxy, of course.

Tue, 12/17/2013 - 11:23 | Link to Comment Mister Ponzi
Mister Ponzi's picture

At least they are pretending not to print outright...

Tue, 12/17/2013 - 11:25 | Link to Comment Clowns on Acid
Clowns on Acid's picture

well... looks like Draghi has had enough of the clowning around. Time for unsterilized liquidity to hit the feckin market and release the Krackken of "controlled" inflation.....

So...either BitCoin or PMs should get a sympathy bid. 

Tue, 12/17/2013 - 12:41 | Link to Comment NotApplicable
NotApplicable's picture

It's just an exercise of managing expectations at this point.

Once the herd accepts it as inevitable, the "New Normal" starts to become the "Same as it Ever Was."

You know, gotta numb that "risk market" that Tyler mentioned.

Tue, 12/17/2013 - 11:36 | Link to Comment virgilcaine
virgilcaine's picture

Fed liquidity is the rope with which to hang the  ecb with. Life line or noose? These are currency , financial wars.

Tue, 12/17/2013 - 12:37 | Link to Comment NotApplicable
NotApplicable's picture

More like one giant snake eating its own tail, while commenting on how healthy its growth is.

Tue, 12/17/2013 - 13:13 | Link to Comment no more banksters
no more banksters's picture

"We will start with Italy and Spain. We will order rating agencies to attack, exclude them from markets and throw them to the ECB trap. They will be forced to take similar measures, as Greece did, in order to receive liquidity. Then, we will attack France and Germany."

Tue, 12/17/2013 - 15:59 | Link to Comment Yen Cross
Yen Cross's picture

    There's also over 200 billion unpaid on the (3) year LTRO that will roll over into the new year. I'm sure Draghi will just let the unpaid balance be rolled into another larger LTRO in 2014. Keep kicking that can Mario.

Wed, 12/18/2013 - 03:50 | Link to Comment Central Wanker
Central Wanker's picture

Is it too late to sterilize Draghi? 

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