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EUROZONE CRISIS DEEPENS: Slowdown In Europe Accelerated, BOS Starts Using ELA, ECB Bond Purchases Will Be “Sterilized” & MERKEL OPPOSES UNLIMITED

 
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09/05/2012 10:43 AM
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EUROZONE CRISIS DEEPENS: Slowdown In Europe Accelerated, BOS Starts Using ELA, ECB Bond Purchases Will Be “Sterilized” & MERKEL OPPOSES UNLIMITED
EUROZONE CRISIS DEEPENS: Slowdown In Europe Accelerated, BOS Starts Using ELA, ECB Bond Purchases Will Be “Sterilized” & MERKEL OPPOSES UNLIMITED BOND PURCHASES!!!

ECB Bond Purchases Will Be “Sterilized”
These details were just reported by Bloomberg…

The ECB bond playing WON’T involve setting public yield caps, as some had wondered.
Instead, bond buying will be unlimited but sterilized.
The bond plan has the support of the council, and the plan will stress conditionality.
The ECB will consider selling bonds if conditions not met.
The ECB will target bond buys up to three years.
So what does this mean?

Basically the ECB is going to buy a ton of peripheral debt in durations up to 3 years. But the detail that’s really making people worry is that the purchases will be “sterilized” meaning that for every bond theoretically purchased by the ECB, something else will be sold, so as not to change the size of the ECB balance sheet.

But there’s no free lunch. The ECB will not buy debt from countries that aren’t taking fiscal measures.. that’s what’s meant by “conditionality.” There will be specific requirements to be eligible for these purchases.



MERKEL TELLS LAWMAKERS SHE OPPOSES UNLIMITED ECB BOND PURCHASES


Whether it is “buying-the-rumor” to “sell tomorrow’s news” or some contagion from domestic bank-to-sovereign credit arbitrage, European credit markets are giddy with the Draghi rumors. European sovereigns are better but are leaking back a little now – with 2Y limping higher in yield. European stocks seem thoroughly unimpressed for now broadly-speaking (despite EUR strength helping drag US equities higher?) The world, it seems, has no idea what is going on once again… and then Merkel adds this:

*MERKEL TELLS LAWMAKERS SHE OPPOSES UNLIMITED ECB BOND PURCHASES
*MERKEL CAN ACCEPT TEMPORARY ECB BOND BUYING, BARTHLE SAYS
*MERKEL CAN ACCEPT ECB BOND BUYING OF SHORT MATURITIES: BARTHLE

...

[link to investmentwatchblog.com]

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