European Central Bank bought 22 billion in euro-zone bonds

The European Central Bank (ECB) announced on Monday that it had bought up 22 billion euros in government bonds, in its efforts to ease the pressure on borrowing costs for Italy and Spain. The bank said early last week that it would be making such a move, but it was not until yesterday that the scale of the operation was revealed.

While the ECB did not announce exactly what percentage of the 22 billion went on which country's debt, it is understood that most was spent on Italian and Spanish bonds, with a smaller amount spent on Portuguese and Irish debt.

Yields on Spanish 10-year bonds dropped to 4.9 percent on Monday, while Italian bonds were at 4.89 percent. Both countries saw yields on those bonds as high as six percent last week, until the ECB began to intervene in the markets.

In the secondary market for sovereign debt, the Spanish risk premium (the difference between the interest rate compared to the benchmark German bund) held steady at 265 basis points.

The buy-up of euro-zone bonds by the ECB was the first since March 19. The move was part of the so-called Security Market Program, which was developed by the regulator while the Greek rescue plan was being negotiated in May 2010.

According to market sources, the ECB bought up Spanish and Italian debt last week, and Irish and Portuguese bonds on August 4 and 5. To date the ECB has acquired euro-zone public debt to the tune of 96 billion euros.

On August 4, the ECB took the decision to maintain its bond-buying program in order to assist countries under market pressure, such as Spain and Italy, despite the opposition to the move of figures such as the president of the Bundesbank, Jens Weidmann.

Calmer markets

Meanwhile, the European markets saw a calmer day's trading on Monday after the roller-coaster ride they endured last week.

None of the major bourses gained or lost more than one percent, with Spain's blue chip Ibex 35 closing up 0.7 percent, leaving it above the 8,700-point level.

The German Dax also rose, by 0.41 percent, as did the French Cac (0.78 percent) and the British FTSE (0.57 percent).