ECB Plan Leaked: Said To Include Unlimited Buying

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Market Mover: ECB Plan Said To Include Unlimited Bond Buying

Bloomberg is reporting this morning that ECB President Draghi's bond buying proposal, which Draghi has recently pledged “will be enough,” will involved unlimited bond buying - but that there will be strings attached.

According to Bloomberg, “Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in the fragmented euro-area economy and ensure the survival of the common currency.”

Bloomberg cites two European central bank officials briefed on the plan, who said that the intervention proposal involves unlimited purchases of sovereign debt that will be “sterilized” (meaning that there will be equal amounts of bonds sold on the open market to offset the purchases so as to not increase the ECB’s balance sheet) in order to reduce the concerns many officials have about the ECB printing money to support governments.

Bloomberg added that the plan will only focus on government bonds and will target shorter-dated maturities of up to about three years. In addition, ECB purchases will not have seniority – something that has been a hot topic of late.

Draghi is expected to stress the importance of conditionality – meaning that any country looking for ECB support must meet EU demands on the fiscal front. According to reports, the ECB would likely to halt any bond-buying intervention if a government failed to comply with the reform measures agreed to in an official bailout request.

Note that the plan will not include any publicized “cap” on yields or spreads, something that had been widely discussed in the markets of late.

According to the article, ECB policy makers are expected to adopt Draghi's proposal and that only Bundesbank President Jens Weidmann opposing the plan.

The next ECB meeting is scheduled for Thursday morning.

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