As reported by CNBC’s Patrick Allen, following a dramatic end to the trading week that saw Italy pledge to speed up its austerity measures and S&P downgrade America’s credit rating, the European Central Bank decided this weekend it had to act.
Bond yields in both Italy and Spain fell sharply at the market open Monday, while stocks in both countries rose sharply on news of the intervention from the ECB.
Having welcomed promises from Spain and Italy to speed up reform, the ECB said “it will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions—taking account of dysfunctional market segments—and therefore to ensure price stability in the euro area.”
That’s widely regarded to mean the central bank will step into the market Monday morning to buy Italian and possibly Spanish debt in a bid to lower borrowing costs for both euro zone members and boost confidence in Europe’s banking sector, which has been hit hard by the sovereign debt crisis.