Last Week, For The First Time Ever, Someone Bought Bonds Sold By The ECB

One month ago, when the Steinhoff accounting fraud scandal erupted, sending the company's stock and bonds crashing...

... the biggest surprise was that none other than the ECB was found to be among the holders of Steinhoff's tumbling bonds. As we said at the time, "the ECB has emerged as the most prominent, if not so proud, owner of Steinhoff 2025 bonds as a cursory look of the ECB's latest holdings (courtesy of UBS) reveals:"

More from our Dec. 8 post:

An ECB official confirmed, telling Bloomberg that the central bank owns "some" of the January 2025 bonds, declining to elaborate on the size of the holding (although it is limited to 70% of the total issue size). As Bloomberg notes, the ECB bought into the 800 million-euro Steinhoff Europe AG bond in July, the same month the note was issued. It is also distinctly possible that the ECB bought the bonds directly from Steinhoff, bypassing the secondary market directly and monetizing what would soon be "half off" paper.

The curious case of Steinhoff's corporate scandal and tumbling bonds, which were since downgraded to deep junk, or Caa1 by Moody's making them not only "fallen angels" but ineligible for ECB purchases (which demand at least one investment grade rating), sparked two questions:

  1. Will the ECB sell these bonds, sending a very mixed signal to the market which has traditionally assumed that the ECB would only purchase - never sell - troubled securities, and
  2. How long before other such "fallen angel" time bombs blow up on the ECB's balance sheet, and threaten the credibility of the ECB's hedge fund ways? And blow up they will: as we showed last month according to one of the most recent breakdowns of ECB holdings by UBS, the central bank now owns 26 "fallen angel"-equivalent bonds with a junk, or BB+ rating, amounting to €18 billion in notional debt.

On the first question, the wheels started turning last month when as we previously pointed out, there was a distinct change in the CSPP's Q&A language, in which the ECB replaced that "The Eurosystem is not required to sell its holdings in the event of a downgrade below the credit quality rating requirement for eligibility", with the following language:

The Eurosystem may choose to, but is not required to sell its holdings in the event of a loss of eligibility, e.g. in case of a downgrade below the credit quality rating requirement.

Well, as of Friday's close we now know that the ECB chose to sell its holdings of Steinhoff bonds, because according to the latest weekly list of securities held under the CSPP (link), one specific ISIN, XS1650590349 is no longer among the list of ECB holdings. That ISIN, as the table above shows, is that of Steinhoff's €800MM of 2025 bond, or the newly-junked bond in question.

And while it now appears that at least based on this one instance the ECB will have zero tolerance for fallen angels, it remains unclear how the ECB will Mark-to-Market the nearly 50% loss it has to eat on its Steinhoff bonds;


It is also unclear who is the lucky counterparty who, for the first time in history, bought bonds that the ECB was forced to sell.

Finally, and most importantly, the answer to the second question is still to be determined as it remains unclear what happens during the next recession when billions more such "Steinhoffs" suddenly explode on the ECB's balance sheet.

We look forward to finding the answer.


Buckaroo Banzai Reality_checkers Mon, 01/08/2018 - 13:42 Permalink

"David Irving is a liar who makes things up. He gives holocaust deniers a bad name, as if they need any help."

Well you revealed your ignorance about David Irving in just two sentences. Irving is that rare kind of historian who bases his work strictly on primary sources like contemporaneous documentation, physical evidence, and eyewitness accounts. Anybody who knows anything about David Irving knows that he was basically agnostic on the holohoax, saying that maybe it happened or maybe it didn't but since he couldn't find any contemporaneous German documentation that the holohoax happened, or any actual physical evidence, that it didn't leave him room to say much about it one way or the other. But since the Jews only allow one position on the holohoax--i.e. slavish adherence to the "muh six gorillion were gassed and disappeared up chimneys" narrative under all circumstances--they targeted him for destruction.

Hilariously, after the Jews ruined his career, he tried to walk back his original assertions of agnosticism by promoting a narrative that, well, maybe it happened after all because it was later discovered that the SS completely dismantled some camps and made them go away at some point during the last few years of the war, so therefore because the SS went to all the trouble to dismantle some camps that maybe those vacant pieces of land where it seems some camps used to be was where the holohoax happened. In other words, the absence of evidence is the evidence!

This is what Jews make you do. Sad that Irving cucked like that, it didn't help him one bit of course. He should have just said, "you know what you stupid kikes? The holohoax was a fucking lie, now go gas yourselves." CUCKING. NEVER. PAYS.

In reply to by Reality_checkers

NoDebt Mon, 01/08/2018 - 12:08 Permalink

Two things don't apply to central banks:  Profit or insolvency. 

Makes it all the more curious why they would sell these off when IT DOESN'T MATTER TO THE CENTRAL BANK EVEN IF THEY GO TO ZERO.  My guess: somebody the CB wished to favor wanted to buy them.


Vilfredo Pareto NoDebt Mon, 01/08/2018 - 16:11 Permalink

They can't nakedly monetize corporate paper like that.   Then they have the credibility of Venezuela, which is where they are heading anyway since it is clear monetization to those of us who know these positions will never be fully unwound


The rare sale notwithstanding.  The rare exception proves the rule

In reply to by NoDebt

InDisbelief Mon, 01/08/2018 - 12:35 Permalink

Who says they sold them?  Probably written off with a stroke of the pen, and magical money created to fill the hole. 


IT"S A CENTRAL BANK.  There's no higher authority, and nobody will stop them.  Ever.

bofs Mon, 01/08/2018 - 12:36 Permalink

Does this mean the ECB has gone full retard/hedgefund, or at which point does that become true anyways?

Yes, profits and insolvency don't apply when you can "print" all you need, but what will be the implications of that manifesting itself?

Is it even mathematically possible to solve this without creating even more debt/risk, ad infinitum... ?

J Mahoney Mon, 01/08/2018 - 12:41 Permalink

China can keep printing away and goes unnoticed so they are likely the buyer--same principle are waiting to "buy off" the Saudi's with an injection into Aramco--case of good old blackmail and they have so much phoney money why not use it to promote future business in the Yuan. Long term investment in the "One Road" currency transition.

hooligan2009 Mon, 01/08/2018 - 12:54 Permalink

perhaps the loss is the equivalent of the salaries and pensions of ECB officials for the next twenty years.

easy money for libtard socialists in the central bank club.

remember the maxim of central bankers "do no work, pay no taxes, print money" and of course, "a la carte feeding at the tax-payers trough".

the buyer is probably the same bank or hedge fund that was involved with the pristine issue of crony capitalist fake debt, who can mark a profit on a short sale of 80-90% - all courtesy of european tax payers.

more evidence from the "bleh witch project".

keep dancing



Dragon HAwk Mon, 01/08/2018 - 14:37 Permalink

Becoming real obvious that central bank Money comes From God,

  and working people Money comes from Sweat  and Blood.  and i wish that was sarcasm.

Vageling Mon, 01/08/2018 - 14:53 Permalink

Wait... Wut? Some idiot actually bought garbage from the ECB? ... Fuck me, so there's a level of stupid beyond a special kind of stupid? WTF are these Euro banksters up to now! And how much money will they demand from me! As it's obvious this is a scam that taxpayers need to pay for.