ECB details $292B holdings under discontinued bond-buying program, nearly half from Italy

FRANKFURT – The European Central Bank says Italian government bonds account for nearly half of its total holdings under a now discontinued bond-buying program launched in 2010 to ease the eurozone’s debt crisis.

The ECB on Thursday detailed for the first time what countries’ bonds it acquired under the so-called Securities Markets Program, which it started when the euro area’s debt crisis flared in May 2010.

The central bank for the 17 European Union countries that use the euro said it holds bonds with a face value of €218 billion ($292 billion) — €102.8 billion of them from Italy.

Spain accounted for the second-biggest holding, with bonds nominally worth €44.3 billion. The ECB also holds Greek bonds with a face value of €33.9 billion; Portuguese bonds worth €22.8 billion; and Irish bonds to the tune of €14.2 billion.

The program was aimed at easing the eurozone’s crisis over too much government debt in some countries. It sought to lower bond-market borrowing costs for indebted countries so that they were more in line with the ECB’s low benchmark interest rates. But the program failed to convincingly keep the rates down, so the ECB halted it last year and replaced it with a new, bolder program.

The ECB has in the past said how many bonds it bought overall in any given week, but it never revealed what countries’ bonds it bought and in what specific amounts.

It is revealing that information now as part of a transparency policy meant to increase confidence in its new bond-buying program, dubbed Outright Market Transactions. Under the new program, the bank will only buy a country’s bonds in the open market if that country enters into a formal agreement with the eurozone bailout fund to curb its deficits and debt.

Buying bonds raises their price and lowers their interest yield, which reflects a country’s borrowing costs. That’s because price and yield move in opposite directions.

No bonds have been bought under the new OMT program, but its mere existence has helped lower borrowing rates for indebted governments and calm fears a country such as Spain or Italy might default on its debts.

The ECB also said it increased its net profit by 37 per cent to €998 million last year. It said stronger interest earnings on its holdings and investments helped improve the result.

The money is handed over to national central banks, who in turn can hand any profits back to their national governments.

The ECB made €555 million on its holdings of Greek bonds — money that eurozone governments have agreed could be applied to lower Greece’s debt load.