from Barclays Bank PLC:
might (and probably will)[ is.gd/MvptxC ] make further changes to its collateral framework and offer more LTROs to help bank funding.
The ECB might decide to intervene on financial issuers of short securities, but its traditional open market operations (ie, its liquidity operations) are already focused on lending to banks (against collateral, not unsecured). [..] The ECB open market operations are, thus, likely to be in short-dated government securities.
[…] the interventions will take place ‘in the secondary market’ (thereby not directly exposing the ECB to the risk of outright monetary financing) and that the ‘seniority’ issueswill be addressed (and are irrelevant for T-bills), […] ‘short dated’ means a few years, rather than sub-12 months only. Thus, it would include T-bills and short-dated government bonds (Figure 2).
The effect on short end peripheral curves Short-end secondary market purchases could be an important supporting factor for the peripheral t-bills that have been quite volatile over the last few weeks
ECB is ready for some action, but it is still unclear what form it will take and how committed the ECB will be to it. The most positive aspect, in our view, is the potential for parallel actions with the EFSF/ESM by the ECB, combining the conditionality of the EFSF/ESM with the firepower of the ECB, although clearly the details will matter a lot.
Of course, at this stage, there have been no formal requests from Spain or Italy to activate the EFSF/ESM, the German constitutional court still needs to decide on the ESM, and there is no effective backstop in place: many uncertainties remain. Therefore, volatility will likely flare up again, despite the absence of new supply in August and even if flows remain very light: this may trigger some interventions (although we suspect verbal intervention will be preferred) or requests for an activation of the EFSF.
Read also the article by ZeroHedge about some ‘little’ details from Citi on the request of an intervention for ECB/EFSF/ESM – still to be made – from Spain and next, Italy. Here.