FRANKFURT: The European Central Bank (ECB) is reviewing a new bond-buying programme to prevent any market turmoil when emergency purchases get phased out next year, according to officials familiar with the matter.

       The plan will both replace the existing crisis tool and complement an older, open-ended quantitative-easing scheme that’s currently acquiring €20bil (US$23.1bil or RM96.64bil) in debt every month, said the officials, who asked not to be identified because the discussions were confidential.

       No decisions have been made, they said. An ECB spokesperson declined to comment on the report, while noting that staff discuss a wide array of ideas that aren’t necessarily presented to the Governing Council or the executive board.

       Such an initiative would act as an insurance measure in case the scheduled end in March of the €1.85 trillion (RM8.95 trillion) so-called Pandemic Emergency Purchase Programme, known as PEPP, prompts a market selloff of bonds from highly indebted countries such as Italy, according to the officials.

       Under the plan, purchases would be conducted selectively, they said. That would circumvent a rule applying to both of the existing programmes that requires central banks to buy debt in relation to the size of each country’s economy.

       That rule has been in place since large-scale asset purchases started in 2015. It’s intended to assuage concerns that the ECB is financing governments, which is something forbidden by law.

       Cognisant of the market crisis that engulfed Italy at the start of the pandemic, ECB policy makers are trying to smooth the exit from existing emergency stimulus settings while keeping a lid on investor speculation, now that governments are even more exposed after building up debts to fund massive fiscal support.

       Italian government bonds rose, sending the yield on 10-year securities down almost three basis points (bps) to 0.86% as of 7.34am in London. The bonds have sold off in Europe over the last two weeks, with yields rising around 20bps.

       The difference in yield between benchmark Italian and German debt – a closely watched gauge of risk for the region – is currently around 107bps, testing the upper end of its multi-month range. ECB president Christine Lagarde and her colleagues have delayed to December an update to the path of monetary stimulus next year. ― Bloomberg