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ECB Agrees On €20 Billion Weekly Upper Limit To Sovereign Bond Purchases

Tyler Durden's picture




 

In diametrical contrast to the rumor that the ECB and the IMF would collaborate to bail out the insolvent continent whereby the ECB prints and the IMF distributes, something which every German on record has said will not happen, we now get news from German newspaper Frankfurter Allgemeine that the ECB has agreed on a €20 billion cap on sovereign debt purchases: something which means all chimeras of an all out monetization orgy can once again be summarily short down. Bloomberg reports: "European Central Bank governing council members have agreed on a 20 billion-euro ($27 billion) weekly upper limit for sovereign debt purchases as resistance among members grows, the German newspaper Frankfurter Allgemeine Zeitung reported. The ECB council meets every other week to decide on an upper limit for bond purchases used to stem rising yields as the European debt crisis widens, the newspaper reported, without saying where it obtained the information. Members met again late yesterday to discuss lowering the level, FAZ said. Council members from the Netherlands and Austria have added their voices to skepticism over the bond-purchase program, the newspaper said. Those objecting to buying include Bundesbank President Jens Weidmann, Executive Board member Juergen Stark and Yves Mersch, governor of Luxembourg’s central bank, FAZ said." Ah, to loosely paraphrase Amadeus, "the Italians Germans... Always the Italians Germans."

And from the FAZ, Google translated:

In the markets, many investors cherish the hope that the European Central Bank (ECB) on the creditor of last resort for the euro countries and their purchase program dramatically expands. But within the Council of the ECB, which comprises the six members of the Board and the 17 national central bank governors, the resistance is growing against the program. Advocates for the abolition still only a minority, including the German Bundesbank President Jens Weidmann, the Luxembourg central bank governor Yves Mersch and ECB director Juergen Stark.

 

Also Council Members from the Netherlands and Austria have recently been critical. The majority for a continuation of the program is so fragile. On top of that seeps through now that the Council every two weeks agreed to a ceiling on the weekly bond purchases.

 

Could very existence of this limit, which exists since the beginning of the program is in central bank circles treated as a secret because they fear that this is to encourage speculation. According to the Frankfurter Allgemeine Zeitung, the growing skepticism in the Governing Council towards the loan program has meant that the ceiling was lowered to 20 billion €.

 

This Thursday, the Governing Council met and also negotiated a further reduction. The result of the vote was at the editorial close unofficially not to bring in experience. A spokeswoman for the ECB would not comment on the matter. The bond purchase program was launched in May 2010, initially in favor of Greece.

 

Instead, the Council of the ECB appears to impose a countervailing trend. For the past week, as yields on Italian government bonds at times 7.5 percent reached, had some market participants suggested spending 20 to 30 billion euros - as it turns out, would have been so much covered not by the decision of the Governing Council.

 

Instead, had intervened, the ECB and national central banks of the euro system with only 4.5 billion euros. In his first public appearances also tried the new ECB president Mario Draghi to dampen expectations. Only required banks and investors that the Fed intervene with a lot of money. But if they only do this, it would mean they would no longer be credible, it said in the past few days surrounding the ECB.

We give the machines 15 minutes before they comprehend the significance of this news.

 

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Fri, 11/18/2011 - 08:53 | 1890808 misterc
misterc's picture

Wow, just 0.96 trillion € of monetization every year. Price stabeleteeeeee!

Fri, 11/18/2011 - 09:02 | 1890827 Great Unwashed
Great Unwashed's picture

20 bil./wk is quite a bit, no? The last failed Spanish auction only tried to raise 4 billion. The ECB could have bought the whole thing, and then done the same every day of the week.

Fri, 11/18/2011 - 09:22 | 1890867 junkyardjack
junkyardjack's picture

What I'm guessing is that there is a hell of a lot more debt that is already floating out there which is causing insanity with their yields so them covering the new issuances wouldn't help much.  But I'd be interested in hearing someone's explanation because it does seem like it would cover their new issuances so while it would be lipstick on a pig would it be enough to kick the crisis down the road a little bit longer.

Fri, 11/18/2011 - 09:38 | 1890908 Common Man
Common Man's picture

The 20 bil/wk limit (i.e. target) applies to ECB meddling in the primary and secondary markets. When you see the PIIGS + FAAArce yields soaring, its the ECB that jumps in to the rescue. This capacity to rescue now has an upper limit....thats the "comprehend the significance of this news" TD's talking about

CM

Fri, 11/18/2011 - 09:03 | 1890830 AngryGerman
AngryGerman's picture

6 weeks until Xmas, i.e. €120 billion to go. They can buy a lot of Greek, Portugese, Spanish, and Irish bonds with that. They cannot buy a lot of Italian debt with it. Good-bye.

Fri, 11/18/2011 - 09:10 | 1890845 OutLookingIn
OutLookingIn's picture

Okay. Let me see if I got this right. Bear with me now!

The ECB uses EU bonds it has purchased, with freashly minted Euros, from member countries as collateral. To issue new ECB bonds that it "lends" to the IMF so that the IMF may "lend" more money to EU countries who are insolvent, who sell more bonds back to the ECB so they can pretend that they are solvent?

I'm going back to bed. My head hurts!

Fri, 11/18/2011 - 09:50 | 1890939 topcallingtroll
topcallingtroll's picture

Good job sorting this all out, although your inappropriate use of a period threw me and messed up the meaning.

Keep your eye on the pea no matter how many times they shuffle the shells.

Fri, 11/18/2011 - 09:43 | 1890888 chrisina
chrisina's picture

20 bill./wk is more than enough to buy all new issues of PIIGS + F public debt:

 

PIIGS + F public debt = 5 Trill.

ave. maturity = 7 years = 364 weeks

 

ave. weekly issuance of PIIGS+F debt = 13.6 bill. 

 

as a matter of fact, they don't even need to purhcase any of that in order to maintain PIIGS + F sov. bonds rates capped : just send a credible signal that they stand ready to purchase those quantities if rates go above the cap. Signal they are sending now...

Fri, 11/18/2011 - 09:31 | 1890891 sampo
sampo's picture

So that's 1040 billion next year, eh?

Fri, 11/18/2011 - 09:51 | 1890944 topcallingtroll
topcallingtroll's picture

I think someone just rang the bell. Did you hear it?

Risk is so ON!

Fri, 11/18/2011 - 09:12 | 1890850 Eally Ucked
Eally Ucked's picture

They meet every 2 weeks to make new decisions.

Fri, 11/18/2011 - 09:18 | 1890862 Overflow-admin
Overflow-admin's picture

Sure, this 20 billion weekly cap is the end of the monetization scheme /sarcasm

Fri, 11/18/2011 - 08:53 | 1890809 GeneMarchbanks
GeneMarchbanks's picture

'We give the machines 15 minutes before they comprehend the significance of this news.'

It means we're in for a Merry Christmas this year doesn't it?


Fri, 11/18/2011 - 09:05 | 1890832 Mike2756
Mike2756's picture

yep, sanity clause has some oil revs to recycle into EU debt.

Fri, 11/18/2011 - 08:56 | 1890813 Paralympic Equity
Paralympic Equity's picture

There is also the unwritten cap at 7% yield for Italy 10Y

Fri, 11/18/2011 - 08:56 | 1890814 Cdad
Cdad's picture

Might take 20-30 minutes for the machines to realize the significance of the story, Tyler.  Some seriously dumb ass commodity traders are currently enjoying the joy joy, old rumor, complete farce bullshit bounce this morning, being bailed out on their momentum stupidity from yesterday again [and again and again].  Let's call it 25 minutes....mark...

Fri, 11/18/2011 - 08:57 | 1890815 transaccountin
transaccountin's picture

capitalism is long gone

Fri, 11/18/2011 - 09:29 | 1890883 ArkansasAngie
ArkansasAngie's picture

And it is time for us to exert moral hazard on those who perpetrated that policy.

 

Fri, 11/18/2011 - 09:54 | 1890955 topcallingtroll
topcallingtroll's picture

Moral Hazard?

I prefer to exert some Iron Maiden. Those poky things hurt more.

Fri, 11/18/2011 - 08:58 | 1890819 firstdivision
firstdivision's picture

Don't look now, but oil is back over $100, that's bullish for discretionary spending.

Fri, 11/18/2011 - 09:07 | 1890837 GeneMarchbanks
GeneMarchbanks's picture

People doin' a lot of driving today so... there's your causality.

Fri, 11/18/2011 - 09:11 | 1890848 repete
repete's picture

Price of Molotov Cocktails is going through the roof.

Fri, 11/18/2011 - 08:58 | 1890820 Ted Baker
Ted Baker's picture

THESE ARE THE NEO NAZIS (JENS WEIDMANN, JUERGEN STARK, YVES MERSCH, NETHERLANDS AND AUSTRIA) THAT THEY ARE DESTROYING THE EURO AREA AND CAN ULTIMATELY DESTROY THE ENTIRE WORLD...GET RID OF ALL THESE SUCKERS...

 

 

Fri, 11/18/2011 - 09:06 | 1890835 AngryGerman
AngryGerman's picture

ey, is that you bunga. you want my money bitch?

Fri, 11/18/2011 - 09:00 | 1890822 Carlyle Groupie
Carlyle Groupie's picture

Time to inject a Bird Flu variant into the population.

Fri, 11/18/2011 - 09:28 | 1890880 Josh Randall
Josh Randall's picture

I was kinda partial to SARS

Fri, 11/18/2011 - 09:01 | 1890825 bugs_
bugs_'s picture

20Bx52W=1T QE3 via Eurozone.

Fri, 11/18/2011 - 09:03 | 1890828 scatterbrains
scatterbrains's picture

benny/oblama buying spoo with money out of thin air but no worries they'll inflate those digits away, in fact one day after it's discovered what they did the U.S. will have made money on those trades..  half way to Weimar but still.. they are our future heros guys be nice.

Fri, 11/18/2011 - 09:06 | 1890834 css1971
css1971's picture

Sounds like a target more than a limit.

 

80 billion a month?

Fri, 11/18/2011 - 09:07 | 1890836 AngryGerman
AngryGerman's picture

brilliant. good one.

Fri, 11/18/2011 - 09:07 | 1890838 Dick Darlington
Dick Darlington's picture
Eurozone debt web: Who owes what to whom?

 

http://www.bbc.co.uk/news/business-15748696

Fri, 11/18/2011 - 09:12 | 1890851 GeneMarchbanks
GeneMarchbanks's picture

Wait a sec, the UK and US owe nothing to one another? You don't say.

Fri, 11/18/2011 - 09:08 | 1890840 repete
repete's picture

Would you fuck me for $1,000,000?

Yes.

How about $100

What do you think I am? A Whore?

We've already decided what you are, now we're negotiating the price!

Fri, 11/18/2011 - 09:10 | 1890844 Cult_of_Reason
Cult_of_Reason's picture

The stupid dog stock market (futures traders) chases every offer to celebrate Spanish 10-year yields (currently 6.8%) spiking above Italian yields (currently 6.6%)

Europe is fixed again!

Fri, 11/18/2011 - 09:14 | 1890854 scatterbrains
scatterbrains's picture

well it is Spain's turn to install a technocrat after all... need to exert a little pressure.

Fri, 11/18/2011 - 09:36 | 1890902 Cult_of_Reason
Cult_of_Reason's picture

A lot of bulls were positioned for a breakout and Santa Clause rally (~80% of the trading community).

Now they are in the trap and desperate for any rumor/news to bail them out.

Fri, 11/18/2011 - 09:52 | 1890945 Roy T
Roy T's picture

 

I saw some hedge fund manager on one of the channels with a recommendation to "play the Santa Claus rally by the book"

 

  Umm, ok.

Fri, 11/18/2011 - 09:11 | 1890846 BennyBoy
BennyBoy's picture

Why that's only 2.9 billion euros a day.

A monetization bargain!

Fri, 11/18/2011 - 09:12 | 1890852 Everybodys All ...
Everybodys All American's picture

The IMF is setting itself up to be the one world's Federal Reserve ... I wonder if everyone has figured this out by now.

Fri, 11/18/2011 - 09:16 | 1890858 AngryGerman
AngryGerman's picture

they need a purpose. they lost their original one with the end of bretton-woods. Nearly 40 years of preparing a world government, and now the time has come.

Fri, 11/18/2011 - 09:36 | 1890904 jcaz
jcaz's picture

Wow, hadn't thought of that until Steve Liesman blurted it out awhile ago.....  Next Stevie will come to the conclusion that the Fed may have to print if there is further decline in confidence....

Scintillating....

Fri, 11/18/2011 - 09:15 | 1890856 aleph0
aleph0's picture

 

 

 

Eurozone debt web: Who owes what to whom ?

http://www.bbc.co.uk/news/business-15748696

 

Debt is debt ...  even if it's Circular !

Net all the Debt, and the Bankster & Politicians are out of business !

.. which is why we have so much !

Fri, 11/18/2011 - 09:59 | 1890966 g speed
g speed's picture

its not the debt--its the interest!

Fri, 11/18/2011 - 09:15 | 1890857 max2205
max2205's picture

Sounds like a bad "Frankfurter"

Fri, 11/18/2011 - 09:18 | 1890861 chaartist
chaartist's picture

Who the fuck gave them this mandate, also national governments broke all laws that we now backstop other countries debts. Who the fuck they think they are. This is unbelievable. Germans please vote Merkel down asap and go to DEM, so we can all live with our own national currencies. 

Fri, 11/18/2011 - 09:23 | 1890868 Peter K
Peter K's picture

It took the Soviet Union 70 years to collapse. The Euroland Union woun't take that long:)

Fri, 11/18/2011 - 09:24 | 1890871 spanish inquisition
spanish inquisition's picture

I will guess everyone in Europe is scrambling to change their bond auctions to Mondays.

Fri, 11/18/2011 - 09:25 | 1890874 fourchan
fourchan's picture

ecb is going to force the screw job away from them and on to the usa. we are fucked.

Fri, 11/18/2011 - 09:25 | 1890875 bartek
bartek's picture

€1 trillion of printing per year. This is the end of Eurozone as Germany will leave.

The only way for Eurozone to stay intact is 0 monetization and 50-70% default across the board.

Fri, 11/18/2011 - 09:29 | 1890885 gatorengineer
gatorengineer's picture

This will send the markets up 4 or 5 percent today, Im big time short..... I am big time F'ed...............  A trillion a year solves all of the EU....... Print on Bitchez......... Germany is TOAST.........

Fri, 11/18/2011 - 09:42 | 1890925 jdelano
jdelano's picture

my mind is blown by the stunning power of your intellect.  Truly Sir, you are a master of reverse psychology.  Because you proclaimed that you are big time short, I find your assessment that the market is going to go up 4 or 5% today completely credible.  I will therefore cover all my shorts at the open and go all in on a 3x SPY long....

 

Fri, 11/18/2011 - 09:30 | 1890886 slewie the pi-rat
slewie the pi-rat's picture

i think the machines have mangled this, already (paste):

This Thursday, the Governing Council met and also negotiated a further reduction. The result of the vote was at the editorial close unofficially not to bring in experience. A spokeswoman for the ECB would not comment on the matter. The bond purchase program was launched in May 2010, initially in favor of Greece.

i think this is just ongoing stuff

and, it may not even be accurate reporting, here, since the ECB will not issue a statement

this is much more risk-Offy than the IMF bailout scheme, too!

Fri, 11/18/2011 - 09:53 | 1890953 Eally Ucked
Eally Ucked's picture

Full press release about meeting can be found here:
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1360&forma...

Fri, 11/18/2011 - 09:36 | 1890901 lizzy36
lizzy36's picture

Wasn't the most ECB ever bought about EUR19B one week in August.

Further isn't this telling the banks that they can ONLY unload their exposure to Italy and Spain to the tune of EUR20B a week.

 

Fri, 11/18/2011 - 09:40 | 1890916 sbenard
sbenard's picture

I fail to see how this is EURUSD bullish, or for stocks either. It spells LESS intervention than what market would probably have wanted. Bizarro markets!

Fri, 11/18/2011 - 09:47 | 1890932 Mediocritas
Mediocritas's picture

So how long before the Fed starts buying eurotrash bonds as a proxy for the ECB then?

The Fed will exhaust its reserves of euros then modify the upper limit on the euro swap line (remove it), pull a whole lot of euros from the ECB and go on a buying spree. The swap will then be unwound as the ECB exchanges said eurotrash debt for its burgeoning USD account with the Fed, the whole process bypassing forex markets and preventing the euro from collapsing as it should.

I bet the central banks love that idea. They'll try it before they let the euro project die.

Only Germany can stop it, but stopping it means Germany has to shoot its own exporters in the head. My bet is that Germany eventually caves in and lets the ECB start unlimited OMO on condition that current account surplus nations be in the drivers seat (Netherlands, Germany, etc). The euro will weaken but that's not such a bad thing for Germany. No other choice really.

Fri, 11/18/2011 - 10:05 | 1890980 mess nonster
mess nonster's picture

Spot on! If you can't get your third reich with bullets, why not try money?

Only Germany "caves in" after an appropriate time of opposition, just to maintain appearances. "There is nothing quite so vulgar as to make a demand for truth in polite society."

(A. Pike says "If I can't expand slavery with arms, I'll use the Federal Reserve!")

Fri, 11/18/2011 - 10:18 | 1890990 Mediocritas
Mediocritas's picture

Warfare evolved, where soldiers wear ties and wield economics or law degrees.

Fri, 11/18/2011 - 09:49 | 1890936 Falkor
Falkor's picture

YEEESS turn IMF into a bad bank! everyone wins! (sarc)

Fri, 11/18/2011 - 10:27 | 1890983 Mediocritas
Mediocritas's picture

Sorry to belabor the point, but while this may limit direct OMO by the ECB, it doesn't cap indirect OMO by the ECB in the form of accepting eurotrash debt as AAA collateral (when it's actually junk) on loans made to the very same PIIGS (in violation of Basel II).

Using that as a regulatory dodge, the ECB has already handed out in excess of 300 billion euros. It shows up in TARGET2 imbalances between eurozone members.

Furthermore, I remind people that the ECB is not the only printer of euros in Europe. Each national central bank is permitted to print on condition that it simply notifies the ECB and that is exactly what has been going on yet, somehow, the euro exchange rate does not reflect it. Quoting Hans-Werner Sinn:

When a year ago Ireland refused to seek shelter under the rescue ‘umbrella’, and almost had to be bludgeoned by Trichet to do so, people were puzzled. Did the country prefer to go under rather than be saved? Of course it didn’t. The answer to the puzzle was that Ireland had been using its right to rev up the money-printing press at only 1% interest and that it was already being rescued. The ECB rescue facility was more attractive than the official rescue funds of the community of states, which demanded 6% interest.

 

And so it was also with Greece, Portugal, Spain and, more recently, Italy. All these countries rescued themselves with the printing press. As long as the ECB was prepared to play along, there was little incentive for these countries to seek out the expensive official rescue funds or to submit themselves to the conditions imposed by the rescuers.

 

Indeed, the ECB system has organised a lot more help than the public is aware of. It allowed Greece and Portugal to completely finance their current-account deficits since the crisis erupted four years ago by means of the printing press. In Spain, the ECB tolerated the fact that about a quarter of the current-account deficit was financed with newly printed money, and in the case of Ireland and Italy, it allowed these countries to compensate the gigantic flight of capital with the printing press.

 

Because the printing presses in the periphery are still running at full speed, the Bundesbank has had to turn its own presses into shredding machines in order to destroy the money that has flooded in from the South. Since September, the Bundesbank has given no net credit to the German banking system; it instead borrows from it. After deducting the deposit facility, the net refinancing of credit the Bundesbank gave to German banks is now negative.

Europeans are masters of political intrigue. While the meth-head CNBC crowd with an attention span of 5 seconds demand an immediate explosion in Europe, in reality we're likely to see "Waiting for Godot". An endless stream of apocalyptic headlines that stretches out for years on end as eurocrats slink about in the shadows embedding a few knives in the right places. Eventually the world will grow bored of it and stop paying attention and anyone left alive from WWII will wonder what in the fuck they bothered fighting for.

Fri, 11/18/2011 - 10:41 | 1891085 Curtis LeMay
Curtis LeMay's picture

 

ECB Agrees On €20 Billion Weekly Upper Limit To Sovereign Bond Purchases

LMAO! Talk about challenging the bond traders who smell blood in the water.

Now the traders know exactly how far they need to go before they can reap massive rewards as yields spike.

Not very bright them eurofanatics - and thank God for that!

 

 

Fri, 11/18/2011 - 10:49 | 1891111 KickIce
KickIce's picture

I wonder how many favorable accounting "errors" will be found during the next 6 months.

Fri, 11/18/2011 - 11:21 | 1891218 Ned Zeppelin
Ned Zeppelin's picture

20B Euros/week is still over 1T a year, a hefty sum even by NYFed standards.  Not enough, but maybe enough coupled with an energetic rumor mill to keep the rickety Eurozone structure standing.

Fri, 11/18/2011 - 11:56 | 1891329 t0mmyBerg
t0mmyBerg's picture

Strangely, it seems that it is almost exactly the amount that the Fed did in QE2 unless I am mistaken.  So Bernankenstein has a chat with Draghi et al and said "Hey, we did $600B USD in 6 months and our stock market flew higher.  BTFD was the rule of the day.  People made cute movies with those funny bears about it.  It becomes a cultural thing."  Not wanting to stray from the beaten path the response is, well just do what they did.  Problem is that that will be EUR bearish, just as QE2 was USD bearish.  And since OUR stock indices are highly correlated to EUR, it would be bearish stocks?  Will it matter that yields are supported in Europe?  Will they be supported?  Are people that stupid?  The Germans are ultimately right.  Printing relieves the pressure for reform, so it only allows the problem to grow over time.

Fri, 11/18/2011 - 23:18 | 1893392 mbtshoe
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