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As Liquidity Swap Impact Fades, ECB Is Back To Propping Up Peripheral Bond Markets In Size
Last week, in the aftermath of the global coordinated liquidity swap facility expansion (OIS+100 to OIS+50) from November 30, with the added benefit of the contemporaneous Chinese RRR cut, bond yields plunged on short-term hope that the Fed's action would be a long-term solution for the Eurozone. It wasn't. But not before the ECB received a brief respite from manipulating bond markets. As a result of the November 30 action, the ECB proceeded to buy just €635 million of Peripheral (read Italian) bonds as the BTP yield plunged. Days later, following the realization that this is nothing but yet another band aid mechanism, yields once again soared, and depending on the benchmark used, pushed beyond 7% once again. In the meantime, the story of the ECB's 3 year LTRO rescue, lost in the aftermath of the Fed action, was resurrected, and is now attributed by some as being some pseudo bazooka that will rescue the ECB. It won't as was explained yesterday. And sure enough, one week after the knee jerk reaction from the liquidity intervention, the ECB was once again out in full force picking up pennies in front of the steamroller, buying up €3.361 billion in bonds in the week ended December 16, which brings the total purchases at €211 billion (net of maturities).
Needless to say the latter number keeps getting bigger and bigger with each passing week, and tomorrow the ECB will attempt to sterilize the full amount in a liquidity absorbing operation for a total amount of €211 billion. It will be coupled with a 7 day MRO which should provide banks the funding necessary to absorb the liquidity in what can only be explained as an infinte Ponzi loop in Europe where the ECB provides banks the funds they need to conduct daily operations which are allegedly non-inflationary. On the other hand banks already parked €214 billion in cash with the ECB's deposit facility as interbank confidence continues to be largley missing in Europe. However, with the ECB's 3 Year LTRO due on Wednesday, the last thing Europe can afford is a failed sterilization procedure. Which is precisely why watch this space tomorrow: if indeed somehow banks are unable to procure the €211 billion in cash needed to sterilize the SMP's purchases and we have another failed sterilization, then it will be major risk off all over again.
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Citi just dropped?
Wahoo! the Telegraph.co.uk site has referenced Zerohedge for the 2nd time in 2 weeks on their live debt crisis blog (its always the front and center "article" in their finance section)!
Check it out for yourself http://www.telegraph.co.uk/finance/debt-crisis-live/8965011/Debt-crisis-live.html (to speed up the process just hit Ctrl + F and type in "zero hedge" (two words).
I'd come here for my daily news fix regardless, but I'm having fun pondering zerohedges break into contemporary news sites.
BAC, come on. You can do it. You derserve a 4 handle. Insolvent, pathetic company.
I trade fucking size.
No you don't.
http://www.zerohedge.com/article/i-trade-size
http://www.xtranormal.com/watch/7107529/local-trader
how else to handle an environment of
Can the US get a lien on the Alsace region for collateral on it's DW borrowings and unlimited swap lines.....sort of like France did to Germany in the 1920's by invading the Rhur.
Quick, push another bag of O-Negative through the femoral bleed!
For those wondering what a central bank liquidity fx swap is I found a helpful guide below.
http://www.mindfulmoney.co.uk/wp/mmexplainer/a-guide-to-central-bank-foreign-exchange-liquidity-swaps/
what could go wrong a central bank is buying the debt of insolvent nations off insolvent banks so that they can buy more debt, do I have this right?
I don't quite understand how a failure to 'sterilise' means "risk off." Whatever.
So the banks borrow the money off the ECB to buy the bonds and then the ECB buys those bonds off the banks. This would sound crazy if I hadnt already been desensitised to this modern day black magic. The question is how much profit do the banks make off this transaction, does anyone know?Tyler?
How many more interventions are we going to have? Is the free market still working anymore? I feel like banks and governments everywhere are trying anything to keep the global markets from going into an economic collapse.