ECB scoops up all of Italy's new debt just to keep spread stable

FRANKFURT (Reuters) - The European Central Bank scooped up all of Italy's new debt in April and May but merely managed to keep borrowing costs for the indebted, virus-stricken country from rising, data showed on Tuesday.

The ECB bought 51.1 billion euros worth of Italian government bonds in the last two months compared with a net supply, as calculated by analysts at UniCredit, of 49 billion euros.

Yet Italy's 10-year government bond yields declined by just four basis points over that period to settle at 1.491% last Friday. Their spread over Germany's benchmark bond narrowed by eight basis points to 190 basis points.

The data also showed the ECB effectively ditched its rulebook in response to the coronavirus pandemic, hoovering up much more Italian debt than the country's quota would dictate while under-buying Germany.

This was likely to attract fresh criticism of the central bank in Germany, whose constitutional court has already demanded that the ECB justify its purchases of government bonds or lose the Bundesbank as a buyer.

In Italy, the ECB and the Bank of Italy bought 37.4 billion euros worth of bonds under its Pandemic Emergency Purchase Programme, or 21.6% of the programme's monthly total, the first breakdown of the figures showed. Italy's share of the scheme, based on the size of its economy and population, should be 17%.

The deviation from the so-called capital key was even greater in the ECB's Public Sector Purchase Programme (PSPP), with Italy accounting for 26.5% of the purchases against Germany's 13.9%, according to Reuters calculations.

(Reporting By Francesco Canepa; editing by Balazs Koranyi, Larry King)