ECB creates a new acronym: OMTs (Outright Monetary Transactions)6 September, 2012, 21:44. Posted by Zarathustra
Tags: Euro Crisis
But besides the name, the actual plan appears to be pretty much exactly the same one as leaked.
ECB will buy unlimited amount of sovereign bonds, and will be fully sterilised. The bond buying will conditionality attached to EFSF/ESM programme in the form of full macroeconomic adjustment or ECCL, the Enhanced Conditions Credit Line, a precautionary programme. IMF’s involvement will be sought. The bond purchases by ECB will focus on maturities between one to three years, and the purchases will not be senior to other creditors. With OMTs in place, Securities Markets programme (SMP) will be waving goodbye.
And as leaked and expected, the ECB will not set explicit targets for yields.
Meanwhile, the ECB is also implementing measures to preserve collateral availability:
The Governing Council of the ECB has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the central government, and credit claims granted to or guaranteed by the central government, of countries that are eligible for Outright Monetary Transactions or are under an EU-IMF programme and comply with the attached conditionality as assessed by the Governing Council.
The Governing Council of the ECB has also decided that marketable debt instruments denominated in currencies other than the euro, namely the US dollar, the pound sterling and the Japanese yen, and issued and held in the euro area, are eligible to be used as collateral in Eurosystem credit operations until further notice. This measure reintroduces a similar decision that was applicable between October 2008 and December 2010, with appropriate valuation markdowns.
The full technical details for OMTs can be read here.