European Central Bank Begins Bond-Buying Program

gold iraThe European Central Bank has begun its bond-buying program as part of an effort to prevent a triple-dip recession and enhance the current stimulus plan, the bank announced today. 

Mario Draghi, the President of the ECB, has announced that he intends to spend as much as 1 trillion euros to help prevent deflation of the currency. 

Bank policymakers have been under pressure recently as growth for the eurozone slowed to .3 percent in September. Growth is expected to increase to 1.3% next year, but that will still be short of the 1.5% that was predicted in July. 

The European covered-bond market is 250 years old and helps finance the continent’s mortgage industry. In the past, these bond notes have been enticing for investors due to the issuer’s guarantee and the fact that the notes were backed by a group of assets. 

Last year, the European bond market shrank for the first time in over 10 years and is expected to decline even further this year and next, according to the European Covered Bond Council. 

Covered bond purchases are the newest tool to be used by the ECB to induce an economic stimulus. At the end of the year, the ECB is also expected to begin purchasing asset-backed securities. 

This is the third time the ECB has initiated a bond-purchasing program. Past programs were implemented in 2009 and 2011, the first time was to mitigate the damage caused by the Lehman Brothers collapse and the second was in the midst of Europe’s sovereign debt crisis. 

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