The Central Bank of Ireland marked the beginning of the European Central Bank quantitative easing scheme by buying up Irish sovereign bonds.
Although the Dame Street institution is understood to have intervened in the market for Irish debt yesterday, the scale of its purchases is unclear. As the 19-month ECB programme proceeds, traders anticipate that the Central Bank will spend between €500 million and €700 million per month on Irish debt.
The yield on Irish 10-year bonds dropped 3 basis points to finish yesterday’s session at 0.83 per cent. The decline was considerably less than the 8-10 basis point decline in the yields of larger euro zone countries, leading traders to conclude that bond-buying by the central banks of Germany and France were larger than the purchases in smaller countries.
This is in line with the principle under which bonds are being acquired according to the ECB capital key, in which major countries have the biggest share of the ECB capital.
“US yields are down 4 basis points at the 10-year level and Germany is down 8 basis points. You could say that, partly because of the start of QE [quantitative easing], there could be an effect on European markets,” said Dermot O’Leary, chief economist at Goodbody stockbrokers.
Bond auction
The start of the QE programme, through which euro zone central banks will spend €60 billion per month to a total of €1.14 trillion, coincides with preparations in the National Treasury Management Agency for another bond auction on Thursday. The NTMA expects to raise €1 billion through the auction of its existing 30-year bond, first auctioned last month.
German 10-year yields fell to about 0.31 per cent and equivalent Dutch and French debt dropped 9-10 basis points to 0.35 per cent and 0.54 per cent respectively. Belgian yields also declined 9 basis points to 0.55 per cent.
At the same time, the euro traded near an 11-year low, reaching its weakest level since September 2003 before fluctuating. At the close of European markets yesterday the euro was trading at $108.58.
