OMT could be tested by Portuguese request to buy government bonds

Portugal’s president Cavaco Silva has asked the European Central Bank (ECB) to buy Portuguese bonds, suggesting he believes the country has become eligible for support under the as-yet-untested Outright Monetary Transactions (OMT) policy.

Under OMT, the ECB would buy up government bonds maturing in one to three years, in theory bringing down longer term bond yields.

ECB president Mario Draghi has labelled the programme as "probably the most successful monetary policy measure undertaken in recent times", as the creation of OMT alone drove down the cost of borrowing in Spain and Italy and yields on government bonds have fallen, largely thanks to Draghi's confident rhetoric.

However, the policy has also courted controversy, with some economists wary over the apparent lack of planning that seems to have gone into the scheme.

It's also prompted a legal case from Germany, whose constitutional court have been discussing it since yesterday. A ruling isn't expected for several months, but the case has prompted top German judge Udo di Fabio to warn it could result in the collapse of the monetary union.

So will this be the first test of OMT? Probably not, given the circumstances. But it's certainly telling about the state of the Portuguese economy.