Eurozone banks stopped selling sovereign bonds in November, possibly in response to the ECB's one-year lending operation conducted in late October and quarter-point rate cut in early November.

Banks bought €1.4 billion of euro-denominated general government bonds in November following sales in each of the prior four months, totalling €59.1 billion. (The figures are from table 2.6 from the ECB's Monthly Bulletin.)

The news is marginally encouraging for ECB officials hoping that the much larger three-year lending operation conducted last week, and follow-up rate cut in early December, will cause banks to rebuild their bond portfolios, thereby achieving “backdoor QE”.

The ECB is aiming for a repeat of 2008-09, when an increase in lending via refinancing operations of €361 billion during the fourth quarter of 2008 contributed to banks purchasing a record €231 billion of government bonds in 2009. ECB lending has increased by €286 billion so far this quarter (i.e. as of 23 December).

Elsewhere in today’s monetary statistics, broad money M3 fell by 0.1% in November following a 0.5% October decline but narrow money M1 edged up by 0.3%, reversing a September / October drop. Six-month growth in real M1 remains just in positive territory, suggesting a mild region-wide recession. (Real M1 outperforms M3 as a leading indicator of the economy.)

Aggregate real M1 stability, however, conceals respectable expansion in the core offset by continued rapid contraction in peripheral economies, suggesting severe recessions in the latter that will undermine fiscal consolidation plans. Trends remain extreme in Greece and Portugal, with real M1 deposits falling at annualised rates of 22% and 18% respectively in the six months to November.