ECB’s “outright monetary transactions” boost faith in euro

The European Central Bank announced a program called “outright monetary transactions” that will enable it to make unlimited, but sterilised, purchases of sovereign bonds in the secondary market with a focus on maturities of one to three years.

The program is intended to lower yields on government bond markets caused by what ECB President Mario Draghi described as “unfounded fears over the reversibility of the euro”. The sterilised nature of the program means that the ECB will not add to the money supply as the central bank will offset its purchases of sovereign bonds by selling other securities.

The S&P 500 Index in the US rose 2% to a four-year high on the news, while Europe’s Stoxx 600 Index gained 2.3%. Spanish government bonds, the most likely major beneficiary of the ECB's largess, rallied.