(percentages per annum; daily data)
0.0 0.5 1.0 1.5 2.0 2.5
0.0 0.5 1.0 1.5 2.0 2.5 fixed rate in the main refinancing operations interest rate on the deposit facility overnight interest rate (EONIA) interest rate on the marginal lending facility
2009 2010
June Aug. Oct. Dec. Feb. Apr. June Aug. Oct.
Sources: ECB and Reuters.
of 1.00%. With those liquidity-absorbing operations, the ECB allotted an amount corresponding to the size of the purchases under the Securities Markets Programme, which totalled €67 billion on 1 December (see Box 3 below). Liquidity in the euro area remains abundant and is being absorbed by signifi cant daily recourse to the deposit facility and the one-week fi ne-tuning operations sterilising the purchases under the Securities Markets Programme.
Box 3
LIQUIDITY CONDITIONS AND MONETARY POLICY OPERATIONS IN THE PERIOD FROM 11 AUGUST TO 9 NOVEMBER 2010
This box describes the ECB’s liquidity management during the period covering the reserve maintenance periods ending on 7 September, 12 October and 9 November 2010. During this period all euro refi nancing operations continued to be conducted by means of fi xed rate tender procedures with full allotment. The gradual normalisation of monetary policy operations continued, with the fi rst of the two remaining one-year longer-term refi nancing operations (LTROs) maturing on 30 September. On 2 September the Governing Council of the ECB decided that all main refi nancing operations (MROs), special-term refi nancing operations with a maturity of one maintenance period and three-month LTROs would be carried out as fi xed rate tender procedures with full allotment until at least the end of the maintenance period running from 8 December 2010 to 18 January 2011.
The Securities Markets Programme (SMP) announced on 10 May 2010 remained in operation, in conjunction with weekly liquidity-absorbing operations with a one-week maturity aimed at sterilising the additional liquidity provision stemming from the Securities Markets Programme.
Liquidity needs of the banking system In the period under review, the banking system’s aggregate daily liquidity needs – defi ned as the sum of autonomous factors, reserve requirements and excess reserves (i.e. current account holdings in excess of reserve requirements) – averaged
€550.2 billion. This was €33.8 billion lower than the daily average recorded in the previous three maintenance periods.
Chart A Banks’ current account holdings in excess of reserve requirements
(EUR billions; average level in each maintenance period)
0.5 0.8 1.1 1.4 1.7 2.0 2.3 2.6
0.5 0.8 1.1 1.4 1.7 2.0 2.3 2.6
Aug. Feb. Aug. Feb. Aug. Feb. Aug.
2008
2007 2009 2010
Source: ECB.
Monetary and financial developments
This was due mainly to a decline of €34.2 billion in the average value of autonomous factors, which stood at €335.7 billion. The decline in autonomous factors was marginally offset by an increase of €0.5 billion in the average level of reserve requirements, which stood at €213.2 billion.
Daily excess reserves averaged €1.3 billion, unchanged from the previous three maintenance periods (see Chart A).
Liquidity supply
In the period under review, total liquidity supplied by means of open market operations averaged
€620.6 billion. Refi nancing operations supplied an average of €558.1 billion, while the covered bond purchase programme (CBPP), for which purchases ended on 30 June 2010, supplied
€61.0 billion and, together with the Securities Markets Programme, provided an average of
€123.2 billion. An average of €66.7 billion was absorbed by means of fi ne-tuning operations during that period.
One-week main refi nancing operations averaged €166.7 billion, while special-term refi nancing operations with a maturity of one maintenance period averaged €42.7 billion. The total volume of outstanding three-month, six-month and one-year LTROs declined to stand at €298.1 billion on 9 November, down from €392.6 billion on
11 August. This decline was driven by LTROs maturing on 30 September and 28 October (see Chart B).
On 30 September a three-month LTRO, a six-month LTRO and a one-year LTRO all matured, with a total value of €224.7 billion.
Of that, only €133.4 billion was rolled over in two new refi nancing operations – with maturities of six days and three months – which were settled on that day. On 28 October a maturing three-month LTRO with a value of
€23.2 billion was replaced by a three-month LTRO with a value of €42.5 billion.
On 1 October the value of settled purchases under the Securities Markets Programme stood at €63.3 billion, up from €60.3 billion on 6 August. No purchases were settled in the fi rst three weeks of October, and the value of settled purchases then rose to stand at €64.0 billion on 5 November. In parallel, the weekly operations absorbing the liquidity provided by the Securities Markets Programme also increased, absorbing an average of €63.8 billion.
Chart B Liquidity needs of the banking system and liquidity supply
(EUR billions; daily averages for the whole period are shown next to each item)
800 600 400 200 0 -200 -400 -600 -800
800 600 400 200 0 -200 -400 -600 -800
Aug. Sep. Oct.
longer-term refinancing operations: €389.5 billion main refinancing operations: €166.7 billion CBPP and SMP portfolio: €123.2 billion
net recourse to deposit facility: €64.5 billion current accounts: €214.4 billion
autonomous factors: €335.7 billion fine-tuning operations: €64.7 billion
reserve requirements: €213.2 billion
2010
Liquidity supply
Liquidity needs
Source: ECB.
2.4 BOND MARKETS
Compared with their levels at the end of August 2010, yields on AAA-rated euro area and US government long-term bonds increased by around 65 and 50 basis points respectively in the period to 1 December. In the euro area, long-term real yields also rose signifi cantly, possibly refl ecting the positive underlying momentum of the economic recovery. Financial market measures of long-term infl ation expectations decreased moderately. At the same time, heightened tensions in euro area sovereign debt markets contributed to the rise in the spreads of some euro area sovereign issuers to new highs. Spreads on bonds issued by both non-fi nancial and fi nancial corporations did not change much, when viewed over the review period as a whole, but spreads on corporate debt issued by fi nancial corporations increased discernibly in the course of November.
The liquidity absorbed by means of fi ne-tuning operations with an overnight maturity on the last day of each maintenance period averaged €148.4 billion, compared with an average of €255.4 billion in the previous three maintenance periods.
Use of standing facilities
The further decline in the liquidity supply following the maturing of the three LTROs on 30 September resulted in lower net recourse to the deposit facility.1 While daily average 2 net recourse to the deposit facility stood at €83.1 billion in the maintenance period ending on 7 September, this fell to
€41.1 billion in the maintenance period ending on 9 November.
Interest rates
The ECB’s key interest rates have remained unchanged since 13 May 2009, with the rate on the main refi nancing operations standing at 1.00%, the marginal lending rate standing at 1.75% and the deposit rate standing at 0.25%.
With outstanding liquidity remaining ample at the beginning of the period under review, the EONIA remained signifi cantly below the main refi nancing rate, averaging 0.43% in the maintenance period ending on 7 September and 0.48% in the following maintenance period.
With the three LTROs maturing on 30 September and the liquidity supply declining accordingly, the EONIA began to increase strongly, moving towards the MRO rate. The EONIA averaged 0.71% in the maintenance period ending on 9 November.
1 Net recourse to the deposit facility is calculated as recourse to the deposit facility minus recourse to the marginal lending facility.
2 Average net recourse to the deposit facility includes weekends.
Chart C The EONIA and the ECB interest rates
(daily interest rates in percentages)
2.0
1.5
1.0
0.5
0.0
2.0
1.5
1.0
0.5
0.0
Aug. Sep. Oct.
EONIA
fixed rate in the main refinancing operations corridor set by interest rates in the marginal lending and deposit facilities
2010 Source: ECB.
Monetary and financial developments
Since the end of August 2010 the level of ten-year AAA-rated euro area government bond yields has increased overall by around 65 basis points to stand at 3.1% on 1 December (see Chart 21). Long-term US government bond yields recorded a smaller increase of about 50 basis points, reaching 3.0% over the same period. Accordingly, the differential between ten-year nominal US and euro area government bond yields fell from 10 basis points to about -10 basis points. The ten-year Japanese government bond yield increased by 20 basis points to stand at 1.2% on 1 December.
Investor uncertainty regarding near-term bond market developments, as measured by option-implied volatility, rose both in the euro area and the United States. Particularly strong increases in this measure of bond market uncertainty have been observed since early November on both sides of the Atlantic.
During the last three months, movements in long-term US government bond yields have been infl uenced by mixed, but overall positive, macroeconomic news. At the same time, market participants remained sceptical about the strength and sustainability of the US recovery. In addition, changing perceptions among investors regarding the timing, extent and nature of further quantitative easing measures probably contributed to increasing volatility in the US government bond market.
The Federal Open Market Committee decided on 3 November to purchase an additional USD 600 billion of longer-term US Treasury securities in the period to the end of the second quarter of 2011. The initial market reaction to this announcement was muted as it had been broadly anticipated. As investors and market commentators remained uncertain regarding the effectiveness of the purchase programme, volatility in long-term US government bond yields increased further in November.
In the euro area, long-term yields on government bonds from AAA-rated sovereign issuers ranged around 2.4% at the end of August – a very low level by historical standards. During the last three months bond yields have displayed a clear upward trend, while intra-period fl uctuations have been lower than those recorded for corresponding US government bond yields. Overall, the increase in long-term euro area government bond yields appears to refl ect the positive underlying momentum of the economic recovery in the euro area. This interpretation is supported by the fact that euro area long-term real yields have also increased markedly, both at medium and long horizons. Like their nominal counterparts, long-term real yields ranged around historically low levels at the end of August, with fi ve-year bonds recording yield levels of near zero. Since then they have increased by around 40 basis points to stand at 0.4% in early December. Real yields on ten-year bonds in the euro area increased by 65 basis points, thereby roughly matching the increase in the corresponding nominal rates, and ended the review period at a level of 1.4%. With this steepening of the real yield curve, fi ve-year forward infl ation-linked bond yields fi ve years ahead increased from 1.4% in late August to stand at 2.3% in early December (see Chart 22).