Yesterday Kostas Kalevras pointed out a big spike in the ECB's MRO (main refinancing operations) facility. MRO is the central bank's short-term lending facility. Back in February when the ECB offered out the second 3-year LTRO, banks rolled a great deal of their short term MRO loans into the 3-year facility. But something occurred in the last few days causing a €68bn increase in MRO (more than doubling the outstanding balance).
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| ECB's MRO facility (€bn) |
One possibility - and this is pure conjecture - is that this is incremental support for Spanish banks. If the Spanish government guaranteed newly issued bank bonds, such bonds could be posted as collateral at the ECB. That would allow Spanish banks to draw on the MRO facility and purchase newly issued as well as secondary government paper (see this post on how this has been accomplished in the past). That could explain the run-up in Spanish bonds over the past few days as well as the successful auction this morning.
NY Times: - Spain carried out a successful bond auction Thursday under intense scrutiny, even as expectations are growing that Madrid will soon ask other European nations to bail out its banking sector.
SoberLook.com