It's quite possible that the announcement of 3-year liquidity auctions, the second of which will take place at the end of the current month, is responsible for the drop in bond yields in recent peripheral bond auctions (Spain and Italy, mostly). After all, banks know in advance they'll be able to turn the bonds into cash.

However, none of this liquidity is free or cheap, despite the low interest rate (you have to take into account the valuation haircut for collateral).

See Why Deutsche Bank Avoids The LTRO

Sometimes, there is news that isn't what it seems. Today, we got one of those: Deutsche Bank (DB) saying that it didn't take advantage of the LTRO due to its wish to keep its reputation.

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So German public debt yields 0.2%, Deutsche Bank would be losing money on it if it decided to buy and deliver such debt at the LTRO. This means that for Deutsche Bank to make money on the LTRO, they would need to buy debt from the troubled countries, which at this point obviously no bank official wants to increase exposure to.

So the LTRO is a way for banks to make money, but one that works mostly only for the periphery, troubled, countries and their banks. And Deutsche Bank isn't avoiding it because of its reputation; it is avoiding it because it doesn't want more exposure to the sovereign troubles, and there is no money in it otherwise.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker