A Gentle Reminder Of The Effectiveness Of Prior ECB Bond Buying

Tyler Durden's picture

Today's announcement of the third-coming of the messiah-like Draghi's Bond-Buying program - even if under a different, more catchy, name - brings to mind a chart we offered by way of genuine concern the last time he mentioned this as an option. While he insists it's different this time (because they'll tell us the CUSIPs? we already knew when they were in; because its conditional? and revocable and who trusts their data; because its at the short-end? simply crushing up sovereign funding capabilities and leaving the roll/liquidity needs even greater; Unlimited? we don't remember a limit before?), it is clear that the immediate gaps tighter in bond yields (and spreads) on the announcement of the program was the best it ever was and bonds sold off through each of the previous two SMP efforts. Just saying...

Spanish and Italian bond yields (upper pane) versus the volume of ECB bond buying (lower pane).


...which in aggregate is around the same size that the market implied it was expecting - yields moved from ~4% to over 6.5% as the ECB soaked up over EUR250bn...


Chart: Bloomberg

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Leopold B. Scotch's picture

Going short Euros and long Wurst.

nope-1004's picture

Draghi said it best in his speech, which were his own words:  "We want to give the perception that things are going to work - we want this to work."

In other words, "we know we have no respect and can't do anything, but we're trying like hell to put on a good show here...."


Cognitive Dissonance's picture

Create your own reality or have one shoved up your...................

Perception is reality simply because we act upon what we believe/perceive, making it real. Sort of like putting the cart in front of the horse. Regardless of whether we believe this to be true, those who run the world know this to be true.

knukles's picture


Like when brokers used to agree not to sell crap to unsophisticated clients... because they're not smart enough to understand when they're being lied to?
I smell whole fucking cottage industries in the works!

Randall Cabot's picture

If a false perception fails to alter reality to its paradigm, it can be a very rude awakening when reality manifests itself-look at those South African miners who charged those cops believing the witch doctor's false perception that bullets couldn't harm them!!!

Randall Cabot's picture

 "We want to give the perception that things are going to work - we want this to work."

He's trying hard to believe his own bullshit!

knukles's picture

Nah... he's pretending it's real because he thinks if he pretends it's real you'll believe it's real.
He already knows it's horseshit.  Just part of the game for sociopaths.

Cognitive Dissonance's picture

"Nah... he's pretending it's real because he thinks if he pretends it's real you'll believe it's real."

It's been working for thousands of years so why stop now? If there's one thing about these sociopaths that needs to be understood, it's that they will die trying.

Will we? Because that is what gives them their power, by convincing us to never even try in the first place.

<"Yeah....well, you can't fight city hall.">

Thamesford's picture

If we are going to go that far back in town we might as well paraphrase one history's other unelected European rulers, Julius Caesar:


"Vini, Draghi, Downi"

Caviar Emptor's picture

Told ya: Germans are going to cave. "We shall bail out!"

A Man without Qualities's picture

Draghi was asked if he would consider buying other types of debt.  He basically said it had taken great effort to get to this point and therefore it was not time to consider other things.  The inference was that he doesn't really believe this on its own will be enough to fix the problem, but there is only so fast he can move people along.  He realizes that the ECB will eventually have to plug the holes in the European banking system and the best way to fix the capital ratios of the banks is to buy their dodgy assets, bury them somewhere and pretend it is all ok.

Buzzworthy's picture

Tyler, you are such a party pooper. ;-)

FL_Conservative's picture

Just remember what to do when this shit gets serious.....LIE.


Nothing to see here, folks.  Please move along.

Xibalba's picture

But it worked so well for Bernanke.....

Peter K's picture

And that's the difference. Drahgi doesn't want to make the same mistake this time. The mistake the JCT made last two times was that the ECB actually bought the eurobonds. This time he will only threaten to buy the bonds. And the Euro will be fixed. :)

CDSMonkey's picture

Scary, brilliant, but scary

DoChenRollingBearing's picture

We have not been here in Italy long enough for me to make any decent observations, except these two (granted, these are anecdotal):


1)  LOTS of "We buy gold" signs here in Rome:  LOTS!  Yes, many of them are from the same two companies, but compared to what I have seen before, there are aggressive gold buyers here.

2)  Those Euro stock markets took off like a bang after Draghi uttered his dove-ish remarks re easing...


If I have any other comments of interest to the ZH community re an American's observations here IN ITALIA, I will pass them along..., but let me order another birra first (almost 8:00 PM now...)

magpie's picture

...are there any pro-Draghi demonstrations yet ?

knukles's picture

A proliferation of anecdotal evidence becomes a malleable statistic subject to seasonal adjustment and revision.

MachuPicchu's picture

Super Mario doesn´t even believe his own lies..

Flaming Ferrari's picture

Short this at your peril. Writing has been on the wall for 2 months and today should make it clear. Draghi has got your back. If you are a hedgie up 3% ytd or a long only up 6% with the market up 14%, you have to get long here. That's what moves markets. Oh and the last remaining cynical shorts capitulating.

scatterbrains's picture

Do we go balls deep right here or is it France's turn now?

doubledutch's picture

Mario did what he was told to do by his GS and Co masters and created a last way out....


Meanwhlile is the
Baltic Dry Index (BDI)    -9   675


666 is the Har-Megeddon number...

fonzannoon's picture

Everyone watching CNBC set up the better than expected NFP tomorrow? They are saying how a good number puts Ben on the sidelines. They are pitching it like that should be good for the market. Their voices are a bit high pitched though and they tend to look down and to the left when they speak. I would LOVE to see Ben sit on his hands next week and Germany vote that fucker down. Just to see how in the hell these idiot pundits try to talk this thing up.

Unrelated but what happens when the vix hits 0?

Roubinesque's picture

So nice of the ECB and Euro taxpayers to create a profitable exit for international bond speculators who have repeatedly bought on rumor and sold on the news!

This eventually attracts speculators in bonds and derivatives to the riskiest investments, like moths to flame. A sure payout, but for how long?

Conman's picture

Buy the rumor - buy the news - ah fuck it jsut buy buy buy!

slackrabbit's picture

We will keep buying bonds until it's all fixed.......yea right.

Keep stacking

bidaskspread's picture

Let the acceleration of underfunding pensions commence.

youngman's picture

You can bet both Italy and Spain are licking their lips at how many new 3 year bonds they are going to issue in the next few years.....trillions..they will get rich off of this...the others will follow when they see how easy it is.....just issue and get the money....that buys votes...and it buys yachts and pensiones in the country

khakuda's picture

No one is focusing on what "conditionality" means.  If Spain screams, "I'll be good, I promise, I'll be good" like a two year old hankering to avoid a scolding, that probably counts as trying to reduce debt and will allow for continued bond monetization.

When the kids and grandkids get the bill down the road, they are going to realize that the adults weren't actually behaving like adults at all.

docj's picture

Look, I'm just a humble engineer. My PhD is not in economics or even business. And I'm sure this has been covered here before - probably ad nauseum.

But could someone tell me why, if the central bank purchase of bonds (and, I suppose, equities) is such a wonferful idea, nobody thought of it prior to the market meltdown of 2008?

Because it just reaks to me of "eating one's on poop" - which, while I won't mock anyone's taste, I have to say is probably not a great "the world is saved" long-term plan.

Haager's picture

It is NO GOOD idea. Free market != government/CB  buying bonds. Don't they need to sell?

chart_gazer's picture

if there is any chance markets have any behavior left over from when they were so called free, now would be a good time for a smack down.  bulls drooling all over themselves.