ECB Bought Record Amount of Debt Last Week in Virus Fight

(Bloomberg) --

The European Central Bank boosted its asset purchases by a record last week as it tried to calm financial markets reeling from the impact of the coronavirus pandemic.

Purchases climbed by around 40 billion euros ($44 billion) as the central bank ramped up quantitative easing and kicked off its new Pandemic Emergency Purchase Program

Buying under its existing asset-purchase programs -- comprising sovereign debt, corporate bonds, covered bonds and asset-backed securities -- rose by 24 billion euros.

The ECB also said it spent 15.6 billion euros under PEPP on Thursday and Friday, including 1.5 billion euros on commercial paper. Those numbers aren’t yet included in the official tally because the purchases hadn’t yet reached their settlement date.

The ECB stepped in to suppress the yield gap between safer debt such as German government bonds and that of Italy, which is seen by investors as riskier.

Those spreads, reminiscent of the euro zone’s last debt crisis, had widened amid concern over how governments would finance measures to combat the recession. ECB President Christine Lagarde inadvertently worsened the situation this month when she said it’s not the central bank’s job to close the spreads.

“The bottom line is that they had to step in with quite some purchases to steer spreads back lower,” said Martin van Vliet, a strategist at Robeco. “That threat alone was not sufficient. More is to come.”

The ECB plans to pump more than 1 trillion euros into the economy this year alone as the 19-nation currency union faces the deepest recession in its history.

The pandemic program is particularly powerful, giving policy makers broad discretion to temporarily skew purchases toward member states that need liquidity most, and removing many of the limits that apply to its other quantitative easing program.

©2020 Bloomberg L.P.