October 5, 2012 / 9:35 AM / 7 years ago

Exclusive: ECB would buy bonds "heavily" for 1-2 months, then assess - sources

FRANKFURT (Reuters) - The European Central Bank envisions buying large volumes of sovereign bonds for a period of one to two months once its “OMT” programme is launched, but would then suspend purchases during an assessment period, senior central bank sources told Reuters.

The headquarters of the European Central Bank (ECB) is pictured in Frankfurt July 30, 2012. REUTERS/Alex Domanski

Until now, the details of how the ECB plans to conduct the bond-buying programme unveiled last month by President Mario Draghi have been murky.

Economists have questioned what the bank’s exit strategy might be, or in other words how it would put a stop to “Outright Monetary Transactions” once it had begun to buy the sovereign debt of struggling euro zone countries.

The answer appears to be that the ECB would suspend its purchases on a regular basis for a period that could last up to a month or more.

During that time, inspectors from the EU or “troika” - the ECB, European Commission and International Monetary Fund - would assess whether a country is meeting the conditions of its aid programme. An aid programme is a prerequisite for the ECB to intervene in the secondary bond markets.

Once a country agreed a rescue package with its EU partners, the ECB would open a buying window of “one to two months”, one of the sources said.

“After that period the ECB will stop buying and there will be an assessment phase. After that assessment it will be decided if the ECB buys more or stops,” the source added. “We will go in the market heavily during the time the window is open.”

A second source confirmed the procedure. Multiple officials said the Bundesbank, which opposes Draghi’s OMT programme, would still participate in the bond-buying, which would be conducted by national central banks based on their share of ECB capital.

The ECB declined to comment, as did the Bundesbank.

Draghi hinted at the plan during the opening statement of his news conference on Thursday in Slovenia.

“We would exit from OMTs once their objectives have been achieved or when there is a failure to comply with a programme,” Draghi said. “OMTs would not take place while a given programme is under review and would resume after the review period once programme compliance has been assured.”

Draghi made clear on Thursday that the ECB stood ready to start the OMT programme, but said the onus was on governments to seek aid first.

Spain is seen as the most likely candidate for ECB bond-buying, but so far its government has not made a formal aid request to its European partners.

Writing by Noah Barkin

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