European Central Bank concern over distortion in bond markets

City A.M. Reporter
THERE are severe distortions in Eurozone sovereign bond markets stemming from unfounded investor fears about a potential break-up of the single currency, the European Central Bank said in its monthly bulletin yesterday.

The ECB said its new bond-purchase plan – dubbed Outright Monetary Transactions, or OMT – was a “necessary, proportional and effective” instrument to ensure the transmission of its monetary policy across the Eurozone. The ECB says tensions in bond markets have disrupted the transmission of its monetary policy.

“The current situation is characterised by severe distortions in government bond markets which originate, in particular, from unfounded fears on the part of investors of the reversibility of the euro,” it said in the bulletin.