The last time we pointed out an ECB bond sterilization failure as part of its legacy SNP program was on December 30 of last year (the third in a row), when a liquidity glut led to the biggest sterilization shortfall, one amounting to €39 billion, when only 89 banks submit bids to absorb paper in exchange for a paltry tip. Moments ago, the ECB reported that in just the third such sterilization auction of the new year there was once again a failure to absorb all the €177.5 billion in outstanding toxic peripheral bonds, when an impressive 126 bidders showed up and yet were only able to generate only €152.1 billion in bids, leaving a €25 billion shortfall.
As can be seen on the chart below, this is the fourth failed sterilization since mid-December (and last week was on the margin with just a €1 billion surplus).
Adding this morning’s MRO into the picture in which €116 billion was allotted, there was roughly €50 billion in net liquidity injected into the system and confirming that Europe is largely pressed for every incremental spare Euro.
Finally, recall what we said in our last sterilization failure post:
Remember when the ECB’s bond purchases were quote unquote sterilized? If this pace continues, in early 2014 the ECB’s bond purchases may remain on its balance sheet fully unsterilized. But that’s ok – now even Germany is slowly starting to habituate to central bank activity with no fears what this may mean for future inflation. Because it, like subprime, is contained. Finally, since even the theatrics of ECB’s bond buying sterilization are fading, can it be long before the ECB proceeds to monetize debt outright, and unsterilized? According to BNP, the answer is a resounding no.
Indeed, judging by the feverish pace of purchases of every peripheral bond available, is this merely just another indication how little the ECB cares about sterilization, and is just a hint at an upcoming full-blown and unsterilized bond monetization about to be launched by Mario Draghi? For now the market has responded with a resounding “hell yeah” especially when one considers a headline that just crossed the wires:
DEUTSCHE BANK’S HOOPER SAYS ECB ‘MAY MOVE TO QE’
Well, if anything it sure would explain the Fed’s willingness to taper… and pass the baton to the BOJ and now, the ECB.