With its first purchases of government bonds under its enhancedstimulus plan, the European Central Bank (ECB) showed it's willingto be patient in its efforts to reignite the euro area'seconomy.

The ECB and national central banks started buying sovereign debton Monday under the 19-month plan to inject 1.1 trillion euros(US$1.2 trillion) into the economy. While purchases included bondsfrom at least five countries, the size of individual trades—atbetween 15 million euros and 50 million euros—was small relative tothe program's goals, according to people with knowledge of thetransactions.

“The amount bought may be small to start with, but this will belike a pressure cooker,” said Ciaran O'Hagan, head of Europeanrates strategy at Societe Generale SA in Paris. “They have justswitched on the heat and we will need some time for the pressure tomount.”

Euro-area bonds extended a 14-month rally fueled by speculationthat buying 60 billion euros of debt a month will create a scarcityof government bonds among buyers of the securities. Yields alreadyfell to record lows across the region as the Frankfurt-based bankfollows in the quantitative easing footsteps of the FederalReserve, Bank of England, and Bank of Japan.

The yield on Germany's 10-year bunds fell the most in six weeks,dropping eight basis points, or 0.08 percentage point, to 0.31percent at 2:44 p.m. London time, and approaching the record-low0.283 percent set on Feb. 26.

Gains in Italian bonds were smaller, with the yield onsimilar-maturity debt slipping two basis points to 1.30 percent.That widened the yield gap between the two to 99 basis points,after it narrowed to 90 basis points on Friday, the narrowestspread since 2010.

“We will see more spread compression ahead,” SocGen's O'Hagansaid.

National central banks purchased Belgian, French, German,Italian, and Spanish debt, according to people with knowledge ofthe transactions, who asked not to be identified because theinformation is private.

The ECB said in a Twitter post that it had started purchasesalong with national central banks, while a spokesman for theBundesbank said it was active in the market from 9:25 a.m.Frankfurt time. The Bank of Finland also confirmed on Twitter thatit was buying.

'No Squeeze'

The buying of bonds will be made roughly in proportion to thecapital that each member central bank has contributed to the ECB,though that guideline doesn't have to be strictly followed everymonth. There's also flexibility on what maturity of bonds will bebought by the central banks to reach their target, and acquisitionsof asset-backed securities (ABS) and agency debt are also includedin the plan.

“They know it will not be easy to purchase 60 billion a monthincluding covered bonds and ABS, so they have to deal verycautiously,” said Patrick Jacq, a senior fixed-income strategist atBNP Paribas SA in Paris. “The market remains in positive territory,but there is no further acceleration, which means that apparentlythere is no squeeze on any paper.”

Competition for purchases may come from banks requiring bonds tomeet regulatory rules, pension funds that need to match theirliabilities, passive investors who track debt indexes, and othercentral banks, which buy European securities as part of theirbalance-sheet management.

The potential scarcity pushed the average yield to maturity onthe region's government debt to 0.538 percent Feb. 26, the leastsince at least 1995, according to Bank of America Merrill Lynchindexes.

Belgium's 10-year yield tumbled eight basis points on Monday to0.55 percent and the rate on similar-maturity French debt droppedeight basis points to 0.61 percent.

–With assistance from Eshe Nelson in London and Jeff Black inFrankfurt.

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