Saturday, September 18, 2010

ECBs Securities Markets Programme:

Back in May of this year, the ECB started their Securities Markets Programme where the Central Bank intervened to purchase securities in both Government and Private debt securities markets.

Information is hard to find about the progress of this program, but here is a report on monetary operations (under the "Ad-Hoc" tab) related to the liquidity absorption of these purchases. Excerpt:
......A variable rate tender with a maximum bid rate of 1.00% will be applied and the ECB intends to absorb an amount of EUR 61 billion. The latter corresponds to the size of the Securities Markets Programme, taking into account transactions with settlement at or before Friday 10 September, rounded to the nearest half billion. As the settled SMP transactions last week were of a volume of EUR 237 million, it happens that the rounded settled amount - and the intended amount for absorption accordingly - remains unchanged at EUR 61 billion.......
So it looks like the ECB has so far purchased e61B ($79B) since mid-May. I have not been able to find any details about securities purchased or country of original issue, but the general suspicion is that some of the European countries with smaller economies that have larger, persistent external deficits were/are having problems with issuing their government securities and the ECB has stepped up as effectively a buyer of last resort. Three countries perhaps in this category are Greece, Ireland, and Portugal.

How does this $79B equivalent of purchases compare to the stock and flows of government securities of these three countries? Data from an OECD website here.

Total Government Debt (Stock) of:
Portugal: $191B
Ireland: $108B
Greece: $430B

So the $79B of purchases represent 10.8% of the total government debt outstanding of these countries combined.

Total YoY ('08 to '09) Government Debt net issued (Flow):
Portugal: $27B
Ireland: $38B
Greece: $66B

Accordingly this $79B of ECB purchases represents 60% of this recent flow measure.

If this ECB program is indeed focused on the liquidity of the government securities of basically just these three countries, it is probably a substantial factor in the ability of these countries to issue or at least issue at reasonable rates.

26 comments:

googleheim said...

Hi Matt

I think that the Pope's visit to UK could be partially a confirmation of UK's decision not to enter the German Overlord's Euro,
and that possibly gesturing in a small way that the Lira should come out of it's doldrums if Italy should need to break away and take care of things itself.

Aw shucks, maybe not.

BFG said...

Matt,

Ireland is fully funded up to the 1st quarter 2011, the BOP figures will be released next week and should show a current account surplus, or they will by year end.

Ireland is peculiar in that we only own ~7% of our national debt, the lowest in Europe. Ever since the introduction of the euro, we went from holding over 80% to less than 10%. So, the interest payments on the debt go abroad.

This whole thing is bizarre, in that we are borrowing at 6.3% (10 year yield) to lend to Greece at 5%, as part of the stabilization fund.

BFG

Matt Franko said...

Goog,

maybe! If you look at the data from the OECD link in the post, Italy has what looks like the largest amount of govt debt, quite a lot more than others. I almost think it could be an anomaly in the data but if accurate, Im surprised we dont hear the 'austerians' complaining about them like they do Greece.

BFG: How did Ireland turn the external account around so fast ? did they just stop importing or did they find something to export?
Also, what are the 1 yr Ireland govt bond rates? (the 10 yr rates sounds pretty high in this environment)

Resp,

BFG said...

Matt,

Ireland has a "balance of trade" surplus with most countries except a small trade deficit with Britain. It is the invisibles (Services Income Current Transfers) that are sent abroad and increasingly so at €11B against a BOT of €9.4B, that is preventing the current account from moving into surplus.

I don't know the 1yr, but this is the 10yr yield. It looks like it is going parabolic. There will be a bond sale on Tuesday, so that should be kind of interesting.

If the NCBs are buying government securities, where on the balance sheet of the central bank, should they appear?

Matt Franko said...

BFG,

Try to find a link to the Bank of Irelands Balance sheet and please post here and we can try to indentify the Line Item. I believe it will show up there eventually if the ECB/NCBs is buying the Ireland govt bonds...I would think it would be the Ireland NCB that would buy the Ireland bonds.

Resp,

googleheim said...

Alert ...

Mike and Matt :

Rascism + Out-of-Paradigm = Stupidity Never Seen Before = Kay Bailey Hutchinson Idiot Republican't ...

Kay Bailey Hutchison is using deficit terrorism to support the revocation of federal funds to compensate black farmers :

http://www.chron.com/disp/story.mpl/metropolitan/7208799.html

She says that we should not compensate black farmers who were swindled out of their farms because it would add to the deficit.

However she does support tax breaks for the rich which were subsidized by the sale of $700 Billion in treasuries bought up by China because they were allowed to open up treasury accounts with the funds received by selling toxic exports to the USA - never needing to exchange 1 Yuan Renmibi.

BFG said...

Matt,

Here is the Irish Central Bank Balance Sheet. Table A.2 Financial Statement of the Central Bank of Ireland. It's in an excel format. I can't see nothing that seems to stand out.

And this is the Greek Balance Sheet.

BFG

BFG said...

Matt,

Click on Data under Credit Money and Banking Statistics. Table A.2 or try this link. Table A.2 Financial Statement of the Central Bank of Ireland. It will open up in excel.

Matt Franko said...

BFG,
Can you post a link if you can find one on how the Ireland govt bond auction went today please?

Resp,

BFG said...

Here you go.
Auction History

Today's Auction
Irish Government Bond Auction

BFG said...

Matt,

I think I found them. If you go to the ECB Balance Sheet on the liability side under 2.3 Fixed-term deposits €61,000B. Last May, when the ECB started this program they purchased €16,500B, the following is the balance sheet for that date 25 May 2010. They haven't purchased any since the week of the 13th July, and only because they sold €19,114B the preceding week only to buy €27,134 the following week where it has been since mid July. It now stands at €61B, if they did step in and buy government bonds they should show up when the next weekly report is issued.

What do you think?

googleheim said...

I think we are on the way to DOW 13000 to make Obama look good and get the democrats in power ...

googleheim said...

contrary to the popular double dip recess

Matt Franko said...

BFG,

Yes that is it imo...on the ECB balance sheet...

Im going to try to trace it back now to the Ireland central bank balance sheet as I suspect it is there also....the ECB just being a 'roll up' of the NCBs individual Balance Sheets..

Resp,

BFG said...

Matt,

Yes, for the month of Aug you can see a figure of €683m under Fixed Term Deposits that stands out like a sore thumb. There was an auction that month for €1.5B. So that was their first buy of Irish Government Debt.

Matt Franko said...

BFG,
I cannot though (yet) surely identify the entries on the BS of the CB of Ireland...

The only thing I can point to is the e990M entry under the heading "Marginal Lending Facility" on the BS of Ireland...these amounts in this column started in May (and that is when the Securities markets Progamme started) and has had entries in May, june and August. This may be the Ireland Govt Bonds that the CB of Ireland has purchased.

If so, then the other e60B total (overwhelming majority) ECB system wide has to come from outside Ireland.

BFG said...

Matt,

Yes, I see that, I was looking on the Liability Side under Fixed-Term Deposits, a figure of €683m that only showed up last August. If they did buy Irish Government Debt, would they not put it under the heading General Government Debt in Euro on the Asset Side, seven columns over from the Marginal Lending Facility.

If you have a look at the Portuguese Central Bank, the second half of page 1, on the Asset side under the heading Central Government you will see that since last May that they are holding €437m,€542m,€567m,€569m worth of government debt.

On the Italian Central Bank a figure of €60m.

Matt Franko said...

BFG,

yes! that is the heading where I thought it should be, but it is not there.


Perhaps the ECB is not buying Ireland debt...the bid to cover ratios indicate high interest in the issues no?

Maybe all of this is outside of Ireland...

BFG said...

Matt,

My last comment didn't go through.

Italian Central Bank Fixed Term Deposits €60m.

Portuguese Central Bank, second half of Page 1 on the Asset Side under the heading Central Government started in May €437m, Jun €542m, Jul €567m, Aug €569.

If they are the assets of the Irish Government, should they have not put them under the heading General Government Debt in Euro like the Portuguese Central Bank.

They could be buying the debt of the larger countries such as Spain or maybe France.

Matt Franko said...

BFG,
Yes I agree, it looks like they are buying the debt of some other countries besides Ireland...if so those Ireland bonds may be a real good buy...

Resp,

Matt Franko said...

BFG,

Some of the other CBs may have a lot more Gov Bonds in this account on their balance sheets if the ECB has now 60B bought...

BFG said...

Matt,

Here is the French Balance Sheet report for May , June, and July. There is a a lot of movement on the liability side:

Feb €0.7B
Mar [Couldn't Find the BS for Mar]
Apr €1B
May €36.2B
Jun €49.9B
Jul €1.7B
Aug [Not yet issued]

Do you notice the large drop from the May/Jun time frame to Aug.

On the 29th June the ECB released its weekly report which they had bought in total €51,000B since the program started, on the 7th Jul that was down to €31,866. A drop of just over €19B.

The Germans were furious as always at the time of this agreement and said at the time it was a bailout of French Banks. The Spanish said there banks were fine and went ahead with their own stress tests for the banks to prove it. Sarkozy, threatened to pull France out of the Euro if there was no agreement. Now he plays the immigrant card about Roma Gypsies, maybe to distract the voters. Is this a bailout of France?

Portugal only raised €750m today, they hoped to raise €1B. If the ECB are buying the peripheral debt there doing a bad job.

Matt Franko said...

BFG,

So it looks like:

Total ECB system-wide: e61B

Ireland: 0
Portugal: e2B approx
Greece: e3B approx (increase in Govt Sec. since May)
Italy: e1B (since May)

So I agree with you it does not look like a peripheral issue on volume...

I couldnt find the Bank of Spain BS after looking a bit last evening a little.

It looks like it is mostly France and maybe Spain, Ill keep looking for the Spain CB BS to perhaps confirm.

Resp,

BFG said...

Matt,

Spanish CB
Feb, Mar, , Apr, May Jun.

Search for 7.c Balance when they
open up in pdfs.

There is no big movement on the holdings of Government bonds on the Asset Side.

So we have:

Italy €60m under Central Government.

Ireland €678m Liability Side under Fixed Term Deposits. None on the Asset Side under Government Debt.

Portugal €437m, €542m, €567m, €569m on the Asset Side under Central Government.

France €36.2B, €49.9B, €1.7B
Spain Not a lot of movement.

It looks like the great bulk of the buying has been French Bonds.

Matt Franko said...

BFG,
I wanted to also point out that the NCBs can also buy bank issued securities so that part of it may be impossible to dig out of the individual country BSs. Ill go back and take a look a that soon.

It looks to me that most of the Govt securities are from France though.

The mainstream is in a way slandering the periphery imo...because they are leading most to believe it is the periphery's bonds that the ECB is buying when if you dig like we have here, you can see the volume is with France...

Resp,

BFG said...

Matt,

I thought that would've of been a better way to recapitalize the banks instead of the government buying equity.

Yes, it's all a smoke screen. But saying that it's not getting any better here: GDP dropping 1.2%. So still stuck in a recession/depression.