A week ago, when noting the increasingly weaker results of the ECB's Term Deposit Operation, better known as liquidity sterilization, we said, to the usual ridicule: "With another auction next week, and then many more, all dependent on the amount of debt that Spain et al place "successfully", we expect the Bid To Cover to decline consistently, until we hit a 1 BTC and the ECB realizes its monetization program is a failure." It turns out we were right much sooner than expected: the ECB just reported a failed sterilization operation, attracting only €31.9 billion bids for the most recent, seventh sequential €55 billion auction, in which that amount of sovereign bond purchases had to be "laundered" through the system. Only 45 banks placed bids to take down €31.86590 billion or a 0.6 Bid To Cover, compared to the 67 bidding for €71559.9 billion in the prior week, and a "safe" 1.4 BTC. Furthermore, even this failed auction required a massive surge in the rate on the auction: the weighted average allotment rate for today's operation was 0.54%, compared to 0.31% in last week's operation. The lowest rate was 0.25% and the highest rate accepted, or the marginal rate, was 1% -- the highest allowable under the rules of the term deposit program. This also is a surge from a week ago, when the lowest rate was 0.25%, or the same, and the highest accepted rate was 0.4%, less than half of today's high rate.
Market News summarizes the catastrophe all too well:
Today's disappointing term deposit tender result will also raise questions about the ECB's vow to sterilize all government bonds it purchases since there are, for now at least, about E23.13 billion worth of unsterilized bond buys still in the system.
Here is a chart of what failed quantiative easing looks like: