ECB bond-buying program dormant for 25th week

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By Todd Buell

The European Central Bank refused to intervene on the government bond market last week, settling no bond purchases for the 25th straight week, central bank data showed Monday.

The news comes ahead of another key meeting of the ECB's governing council on Thursday. ECB President Mario Draghi is expected to announce more details of a revived bond buying program, which should reduce the borrowing costs of troubled euro-zone countries.

The ECB introduced the Securities Market Program to buy government bonds in May 2010, but it has failed to use its assets to buy sovereign debt for much of the last six months. This was due to commercial banks' using the over 1 trillion euros ($1.25 trillion) in funds the ECB lent them in three-year loans earlier this year and late last year. The loans went towards buying government bonds of Italy, Spain and other euro-zone countries in crisis and thus lower these states' borrowing costs.

As these funds dwindled and concerns about the viability of the 17-nation currency bloc intensified, borrowing costs for struggling euro-zone countries increased. This sparked Mr. Draghi to announce at last month's meeting that the Frankfurt-based central bank was prepared to buy the bonds of struggling euro-zone members if these countries agreed to an international bailout program with conditions which would require structural reforms.

Spain is considered the most likely candidate to require a bailout. Spain's Prime Minister Mariano Rajoy has thus far resisted calls for the country to apply for aid from the euro zone's rescue funds due to concerns that he has about the strings attached to such aid. At the same time, the Spanish government has strongly urged the ECB to buy its bonds.

The ECB also announced Monday that it intends to drain EUR209 billion, an amount equaling the ECB's total outstanding bond purchases, in a one-week deposit auction Tuesday with a maximum bid rate of 0.75%. The amount is the same as last week. The exercise is designed to offset the inflationary effects of the central bank's bond purchases.

Twitter: @ToddBuell