ECB to continue bond purchases till spring 2011

Many banks had feared that the ECB would slowly begin to phase out its liquidity scheme, officially called its Securities Market Programme.

However, ECB chief Jean-Claude Trichet told reporters in Frankfurt on Thursday (3 December) that the body had decided to continue the practice until March, 2011.

The SMP "is ongoing. I repeat: ongoing," he said at a press conference.

Mr Trichet did not announce any plans to increase the amount of eurozone government debt purchased however, in order to calm the so-called bond vigilantes, who have been steadily exacting higher interest rates and increasing the borrowing costs of countries such as Ireland, Portugal, Spain, Italy and Belgium in the past three weeks.

A number of analysts had suggested that the bank might announce a shock-and-awe-type move of €1 trillion to €2 trillion in debt purchases.

Initially disappointed that the rumour turned out to be untrue, markets nevertheless quickly bounced upwards on the news of an extension of the liquidity provision.

The yield on 10-year Spanish bonds dropped from 5.16 percent to 5.14, while that on Irish bonds fell from 8.9 percent to 8.6.

The single currency meanwhile moved up from $1.3059 to $1.3217.

Up to now, the ECB has purchased €67 billion in government bonds.