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The spreads in European bond yields have narrowed

The ECB Is Already buying Bonds on the PEPP Programme for Coronavirus

Posted Thursday, March 26, 2020 by
Skerdian Meta • 2 min read

The Italian and Greek bond yields surged last week, as Italy collapsed due to coronavirus and the country shut down a few weeks ago now. The surge in yields last week from these two countries, was one of the reasons why the ECB had to step in to announce its new QE program and so far, it is continuing to show good results, as bond yields decline, shown on the chart above. We heard rumours earlier that the ECB might start an OMT programme.

Comments by ECB governing council member, Vitas Vasilauskas

  • ECB’s Vasiliauskas: OMT is part of the arsenal and could be used

But, the OMT is not so sential no, not after the PEPP programme announcement – which already lifted the 33% issuer limit. The European Central Bank rejected that, since it is too late for OMT now, especially after the PEPP. Reuters reported earlier, citing sources familiar with the matter.

Reuters Report

The report says that ECB sees its current pandemic emergency purchase program (PEPP) as a “far more powerful” tool to deal with the current crisis, adding that they could increase the €750 billion cap on the program if needed.

The ECB has already started buying sovereign bonds under the PEPP programme. The details on this programme are scarce as in the legal text and Q&A, the ECB made no commitments to disclose how much they will purchase each time or offer a breakdown of which bonds they are purchasing with regards to the program.

ECB Comments

  • The ECB has started bond purchases under its €750 billion pandemic emergency purchase program (PEPP)
  • Greek debt eligible for PEPP but there is no ‘catch-up’ buying
The ECB also confirmed that they are intervening in the market today and that is keeping European bonds underpinned for the most part, but more importantly it is putting a bid behind periphery bonds – notably Italy and Greece. SO, that’s a good thing and one of the reasons EUR/USD is bullish today.
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