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UPDATE 2-Ireland to reduce bond-buying pace to stay in QE scheme
December 9, 2016 / 12:47 PM / 8 months ago

UPDATE 2-Ireland to reduce bond-buying pace to stay in QE scheme

(Adds Bank of Portugal comment, updates prices)

By Padraic Halpin

DUBLIN, Dec 9 (Reuters) - Ireland's central bank will reduce the pace of bond-buying under the euro zone's quantitative easing stimulus programme in order to remain in the scheme until its scheduled end next December, a source familiar with the matter said on Friday.

The source said the central bank would reduce the pace of purchases - which have stood at around 1 billion euros a month recently - by around 50 percent.

This should allow it to avoid exceeding the amount of eligible Irish debt that can be purchased and benefit from the nine-month extension of QE that the European Central Bank announced on Thursday.

Ireland's 10-year government bond yields rose to a two-week high of 1.00 percent on Friday, up 6 basis points on the day, while most other euro zone equivalents fell.

National central banks purchase their own government debt under the ECB's bloc-wide stimulus programme.

A spokeswoman for the Irish central bank said it "will manage the implementation of the purchase programmes carefully, so that the impact of the programme parameters, or any changes in these parameters, would be as smooth as possible."

Estimates from Cantor Fitzgerald and Societe Generale on Friday showed that, at the current rate of purchase, the central bank would have to stop buying bonds by March because of limits on the amount of a country's debt and individual bonds that can be bought under QE.

The ECB said on Thursday that changing those limits raised legal constraints.

Ryan McGrath, an analyst at Cantor Fitzgerald, said the Irish government could also alleviate the problem further by issuing new debt early next year, or by swapping some legacy floating-rate debt related to the bailout of Anglo Irish Bank, for new bonds that would be eligible for ECB purchase.

Ireland is not alone in potentially running into limits. One of the bloc's weakest economies, Portugal, may also be headed for an early exit from the scheme, analysts said.

The Bank of Portugal said on Friday that it will not alter the way it purchases debt under QE, and will make sure Portuguese debt is bought until the end of the plan.

Portugal was the only other euro zone country to see its bond yields rise sharply on Friday, stretching the gap with German equivalents close to its widest level in 10 months. (Reporting by Padraic Halpin in Dublin; Additional reporting by Andrei Khalip in Lisbon; Writing by John Geddie; Editing by Kevin Liffey and John Stonestreet)

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