ECB ups bond buys to cap rise in yields

The European Central Bank increased bond purchases last week to cap yields, stepping up its market activity even before policymakers decided to "significantly" raise asset buys, fresh data showed on Monday.

Fearing that rising borrowing costs could choke off growth, the ECB decided last week to boost bond purchases, hoping to keep yields exceptionally low while the bloc battles with yet another wave of the coronavirus pandemic.

The bank bought a net 14.0 billion euros ($16.7 billion)worth of bonds under its Pandemic Emergency Purchase Programme (PEPP) up from 11.9 billion euros a week earlier. Combined with other purchase schemes, it spent a net 19.3 billion euros, up from 17.1 billion euros in the previous week.

The new figures do not include purchases made since Thursday's decision to speed up money printing, as transactions take two days to settle. So next Monday's release will be the first true indicator of the bank's newfound resolve.

The ECB can buy around 75 billion euros worth of bonds a month under PEPP without raising its 1.85 trillion euro overall quota, and economists expect purchases in this range over the coming months.

The ECB's intervention has meanwhile appeared to stop the rise in borrowing costs as yields have been trending lower for much of the past week.

Indicating the extent of its purchases, the spread between German and US 10-year debt was at its widest in over a year, highlighting the diverging fortunes of the world's biggest economies.

While the United States is facing a rapid recovery thanks to widespread Covid-19 vaccinations and a massive fiscal stimulus package, Europe is still in recession, while slow progress in its vaccine rollout risks delaying the recovery even further.

($1 = 0.8391 euros)