ECB buying sovereign bonds: why it doesn’t make sense for Spain

The market has been discounting the positive effects of all injections of liquidity from the ECB. For Paula Hausmann, GVC Gaesco account executive, it has to continue discounting anything good that comes from Frankfurt.

“In the end, whether the ECB buys private or sovereign debt, its goal is the same: to inject money into the system so that banks can perform their function and get rid of so many assets,” she commented for The Corner.

On the other hand, and considering that in Europe there is not a liquidity problem, some believe it would be surprising that the ECB focused the quantitative easing strategy on sovereign debt.

Self Bank analyst Felipe López-Gálvez reminds that in the US there was not a liquidity problem either, although $45 billion of the $85 bn monthy QE3 have been allocated to buy sovereign debt.

Another reason to justify a state debt purchase program is the amount of private debt in Europe, which is not high.

From the perspective of Spain, with the risk premium stabilized around the 120 basis points (we woke up on Thursday at 114 bp), the purchase of sovereign debt may not make sense.

“Obviously, the profitability of Spanish debt would fall even more,” López-Gálvez points out.

About the Author

Julia Pastor
Julia Pastor has broad experience in business writing for Consejeros Media Group at Consejeros, Consenso del Mercado and The Corner. Previously, she worked for the financial news agency GBA and contributed to El País Business. She holds a Master's in Financial Journalism and a degree in English from the Complutense University in Madrid.

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