A Bond Buying Bonanza for Europe

Finally, Europe’s leading banker has shown his hand and revealed his plan to save the euro.

European Central Bank President Mario Draghi today said the central bank would launch an “outright monetary transaction,” or OMT, program in the secondary market, under strict conditionality. The program allows the ECB to decide when to start, continue or suspend bond buys. Draghi said OMTs “enable [the ECB] to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.”

Annalisa Piazza, an analyst at Newedge Strategy, said the program was “aimed at restor[ing] the monetary-transmission mechanism. Most of the distortions [are] due to fears not based on fundamentals.” Earlier Thursday, the ECB left unchanged its benchmark interest rate at 0.75%, while the Bank of England also made no changes to interest rates or assets purchases. Today’s announcement is viewed as a crucial moment for global markets and Europe’s financial system.