ECB wades into bond markets to buy Spanish and Italian debt

European Central Bank President Jean- Claude Trichet has signalled the Frankfurt-based bank will “actively implement” a bond purchasing program, able to include Italian and Spanish paper, while welcoming the efforts the two countries’ have already made to restore market confidence.

Bloomberg reported this morning the ECB was already buying Italian and Spanish bonds this morning, having bought Irish and Portuguese bonds last week.

The ECB has bought paper of beleaguered eurozone nations since the middle of last year.

The latest move puts it at odds with Germany’s Bundesbank, which has opposed continued bailouts, and expansion of the ECB’s balance sheet.

In a statement issued after an emergency conference call between members of the ECB’s Governing Council last night, the eurozone’s central bank welcomed the two nations’ efforts to reduce their public deficits.

On Friday, Italy’s Prime Minister Silvio Berlusconi announced plans to accelerate austerity measures and balancing of the national budget by one year, in 2013.

The ECB has not, however, made any mention of expanding the eurozone’s rescue fund, known as the €440bn European Financial Stability Facility (EFSF), a move numerous fund managers advocated on Friday.

In part as a result of the statement issued from Frankfurt last night, Italian and Spanish bonds jumped this morning with 10- year yields dropping over 0.7% to below 5.5% in each case.

Their yields exceeded 6% last week – record highs in the eurozone’s lifetime – and markets feared they could hit 7%, a point widely regarded as unsustainable and one which would require Rome and Madrid to seek central aid.

The euro is up this morning against major currencies.

Onlookers expect a tightening in spreads on Spanish and Italian sovereign debt of between 1% and 1.5%.

Europe’s stocks, meanwhile, rebounded from their slumps of last week in early trading, before turning red again.

Germany’s Dax was down 0.8%, France’s Cac 40 off 0.2% and the UK’s FTSE 100 was down 0.3% at CET 10.45.

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