THE EUROPEAN Central Bank could again intervene in bond markets to try to rectify “unjustified” concern over Spain’s fiscal position, according to a senior official.

The suggestion by Benoît Coeuré, an ECB executive board member, of possible market intervention, helped to ease tension over Spain’s debt yesterday and pushed down the country’s implied cost of borrowing. However the comments could spark renewed disagreement within the central bank over one of its most controversial crisis-fighting tools.

In the past two years the ECB has bought bonds issued by euro zone governments to try to support demand for the debt and drive down yields, which move in the opposite direction to bond prices.

However, the bond-buying, known as the ECB’s Securities Markets Programme, has been all but dormant since January, with some influential policy makers sceptical of its effectiveness and others openly hostile to the implied central bank support for euro zone governments.

ECB president Mario Draghi has since December preferred to focus on a €1 trillion injection of three-year loans into the euro zone banking system as the central bank’s main crisis-fighting measure.

Mr Coeuré said in Paris yesterday that market conditions faced by Spain were not justified. “Will the ECB intervene? We have an instrument, the Securities Markets Programme, which hasn’t been used recently but it still exists,” he said.

The comments helped to support Spanish debt. Yields on 10- year bonds, reflecting government borrowing costs, dropped back to 5.87 per cent, having briefly risen above 6 per cent on Tuesday for the first time this year.

Italy’s 10-year yield slid 14 basis points to 5.54 per cent. The Italian treasury auctioned €8 billion of 361-day bills at 2.84 per cent, up from 1.405 per cent at the March sale of similar-maturity debt.

Marco Valli, the chief euro zone economist at UniCredit, said: “My feeling is that current bond yields are not sufficiently high for the ECB to step in to support Spain and Italy now.” A resumption of bond-buying would probably be controversial, he said.

Mr Coeuré said Spain’s new government had taken “very strong deficit measures” and was showing “enormous” political will.

“What is happening at the moment in the market does not reflect the fundamentals,” he said. – Copyright The Financial Times Limited 2012