Finance Minister says Cyprus discussing ECB bond buyback

The Cyprus government is discussing with the local Central Bank the possibility of asking the European Central Bank to buy back government bonds, its finance minister said on Wednesday, in a bid to lower yields on government paper which have spiked on the secondary market in recent months.
"We have agreed it is an issue which is to be considered," Finance Minister Kikis Kazamias told reporters.
The issue was among several discussed in an open agenda between the finance minister and the Cypriot central bank, the Finance Ministry said in a statement. It denied a Reuters report that the option, would concern a bond buyback from Cypriot banks.
"The above mentioned issue of the ECB intervention in the bond market was never associated by the Minister with the banking system. As it is known, ECB intervention on the bond market is intended to restrain the yield of bonds. In addition, the Minister never associated the issue with the bonds held by local banks in the domestic market of Cyprus," the Finance Ministry said in a statement.
Normally profitable Cypriot banks last week booked losses in the first half from their participation in a Greek debt swap programme. The swap is expected in total to cost them more than half a billion euros in writedowns.
The state has increasingly focused on local markets for financing requirements this year to counteract volatility on international markets.
Cyprus has seen its borrowing costs on secondary markets surge on the back of repeated downgrades by ratings agencies because of fiscal slippage and exposure of its banking sector to Greek debt. A huge munitions blast in July added to its woes by destroying the island's largest power station, fanning speculation the island could require an EU bailout.
Cypriot authorities have cut salaries in the public sector and are preparing a fresh raft of austerity measures to stave off further ratings downgrades.
The government says it will legislate for its public deficit to fall below 2.0% in 2012 — from a forecast exceeding 5.0% this year, and to zero by 2013.
On Wednesday, a 10 year bond issued to international investors in Feb 2010 was bid at 11.9%, from around 6.20% in early May.