EURO GOVT-ECB bond buying sends peripheral yields lower

* Peripheral yields fall as ECB buys Irish, Portuguese bonds

* Bunds fall as ECB says will keep buying bonds, for now

* Markets unsure if ECB action enough to stem debt crisis

By Anna Yukhananov

LONDON, Dec 2 (BestGrowthStock) – Higher-yielding euro zone
government bonds rose in price on Thursday, supported by
European Central Bank buying in the absence of an explicit
commitment to ramp up its bond purchase scheme.

Portuguese 10-year debt yield premiums over German
benchmarks hit a one-month low on the bond purchases, which were
reported by traders. They came after ECB President Jean-Claude
Trichet dashed market expectations for a significant expansion
to the bank’s bond-buying programme to contain the sovereign
debt crisis in the euro zone. [ID:nLDE6B10I4]

“The assumption is that (the ECB) could agree to a certain
amount of bond purchases now, but what they couldn’t agree on
was to make some sort of commitment to doing more in the
future,” said Jonathan Loynes, chief Europe economist at Capital
Economics.

“In time, I suspect that will mean that markets will come to
worry a little more that these sorts of purchases are not going
to be repeated.”

The 10-year Portuguese/German bond yield spread
(PT10YT=TWEB: ) tightened by 57 basis points to 356 bps, its
narrowest in a month, while the equivalent Irish spread
(IE10YT=TWEB: ) squeezed 56 bps lower on the day to 602 bps.

“Small amounts of Portuguese and Irish (bond buying) are
being seen. … They (the ECB) probably need to be in there
buying, given that they haven’t said anything substantial,” a
trader said.

German Bund futures (FGBLc1: ) fell 55 ticks on the day to
settle at 126.47, and 10-year yields (DE10YT=TWEB: ) rose 10 basis
points to 2.823 as peripheral euro zone debt gained ground.

HOW MUCH CAN THEY BUY?

The ECB began buying sovereign bonds through the Security
Markets Programme (SMP) after the Greek bailout in May to
stabilise bond markets, spending 67 billion euros so far.

In the run-up to Thursday’s ECB meeting, speculation was
rife that Trichet would announce new anti-crisis measures to
stop the debt crisis spreading to other sovereigns such as
Portugal and Spain by announcing a big increase in the amount of
bond purchases. [ID:nLDE6B10EI]

“The SMP is aggresively coming in and buying, that’s holding
in spreads for the time being. Once that effect dissipates, then
we might see another widening,” another trader said.

The 2/10-year German bond yield gap widened by six bps to
197 bps, its widest in four months, with two-year Schatz
outperforming as the market priced in lower official interest
rates for longer after the ECB slowed its withdrawal of generous
loans to the banking sector.
(Additional reporting by Kirsten Donovan; Editing by Susan
Fenton)

EURO GOVT-ECB bond buying sends peripheral yields lower