ECB addresses exceptional circumstances in financial markets
On Monday, May 10, in view of the exceptional circumstances prevailing in the market, the Governing Council of the European Central Bank (ECB) decided to implement a number of measures to address the severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy oriented towards price stability in the medium-term. The measures will not affect the stance of monetary policy.
The Governing Council decided to conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments that are dysfunctional.
The Governing Council also decided to reintroduce the fixed-rate tender procedure with full allotment in the regular three-month longer-term refinancing operations (LTROs) for operations to be allotted on May 26 and June 30.
Another decision was to conduct a six-month LTRO with full allotment on May 12 at a rate which will be fixed at the average minimum bid rate on the main refinancing operations (MROs) over the life of this operation.
In addition to these measures, the ECB decided to reactivate, in coordination with other central banks, the temporary liquidity swap lines with the US Federal Reserve, and to resume US dollar liquidity-providing operations for tenors of seven and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment.
On the same day, the ECB announced its weekly MRO. This auction, which was conducted last Tuesday, attracted bids for €99.57 billion from euro area eligible counterparties, €9.25 billion more than the amount bid for in the previous week. The bid amount was allotted in full at a fixed rate equivalent to the prevailing main refinancing rate of one per cent in accordance with the current ECB policy.
On Tuesday, May 11, the ECB conducted a Special Term Refinancing Operation (STRO) with a maturity of 35 days. This attracted bids for €20.48 billion, with bids again being allotted in full at a fixed rate equivalent to the prevailing main refinancing rate of one per cent in accordance with the current ECB policy.
On the same day, it being the end of the reserve deposit maintenance period, the ECB also conducted an overnight Fine-tuning Liquidity Absorbing Operation. This was carried out at a variable rate, with counterparties allowed to place up to two bids at a maximum of one per cent. The operation attracted bids for €319.75 billion, of which the ECB accepted €319.69 billion, or 99.98 per cent of the total amount bid for. The marginal rate on this operation was set at 0.80 per cent, while the weighted average rate was 0.76 per cent.
Also on Tuesday, May 11, in accordance with the Governing Council decision of the previous day, the ECB, in conjunction with the US Federal Reserve, conducted an eight-day US dollar funding operation through collateralised lending. This attracted bids for $9.57 billion, which amount was allotted in full at a fixed rate of 1.13 per cent.
The next day, in accordance with the Governing Council decision of May 10, the ECB announced a LTRO with a maturity of 182 days. This operation attracted bids for €35.67 billion from euro area eligible counterparties, which amount was allotted in full at a rate to be fixed at the average minimum bid rate of the MROs over the life of the operation.
Meanwhile, in the domestic primary market for Treasury Bills, the Treasury invited tenders for 91-day bills maturing on August 13, 2010 and for 273-day bills maturing on February 11, 2011. Bids for €50 million were submitted for the 91-day bills, with the Treasury accepting all bids, while bids for €50 million were submitted for the 273-day bills, with the Treasury again accepting all bids. Since €22 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by €78 million to €612.88 million.
The yield resulting from the 91-day bill auction was 0.549 per cent, 0.5 basis points higher than that on yields with a similar tenor issued on April 30. The yield on these bills represented a bid price of 99.8614 per 100 nominal. The yield resulting from the 273-day bill auction was 0.7660 per cent, i.e. 33.4 basis points lower than that on bills with a similar tenor issued on February 26. The yield on these bills represented a bid price of 99.4225 per 100 nominal.
Treasury Bill trading on the Malta Stock Exchange amounted to €0.8 million during the week, with all trades being conducted by the Central Bank of Malta in its role as market maker.
Today, the Treasury will invite tenders for 91-day bills maturing on August 20 and 182-day bills maturing on November 19, 2010.