EUROPE - Pension funds and national associations today welcomed the announcement by the European Central Bank's president Mario Draghi that it could begin an unlimited bond purchase programme in an effort to lower the yields of countries including Spain and Italy.

Although the announced Outright Monetary Transactions (OMT) programme - fiercely resisted by Germany's Bundesbank for blurring the lines between fiscal and monetary policy - will be linked to conditions in line with previous bailouts through the European Financial Stability Facility, it was welcomed by pension funds across the continent.

Several investors, including newly appointed chief investment officer of France's UMR Philipe Rey, were pleased with Draghi's use of the word "unlimited" to describe the programme's scope.

Rey told IPE the fund had expected a "strong" announcement, but not the promise of unlimited purchases.

"This shows a real willingness from the ECB to support indebted countries, especially Spain and Italy," he said.
Michaela Attermeyer, head of asset management at Austria's largest Pensionskasse VBV, said the ECB did not disappoint investors yesterday.

"The announced 'unlimited' bond purchase programme shows the ECB has taken over the leading role in the fight against the euro crisis," she said.

Ángel Martínez-Aldama, director of the Spanish association of pension funds INVERCO, said the plan to buy euro-zone short-term bonds in the secondary market was very "promising" for markets and Spanish pension funds, traditionally heavily invested in Spanish-denominated government bonds.
"The most important thing for investors is to have a clear idea of where the markets are going, and once this announcement is clarified, the market will reflect the move," he said. "This will certainly contain the volatility that has been increasing significantly in recent months."

However, not all investors were positive about the development that will see the central bank buy debt with maturity of up to three years, sterilising each purchase.

Johan Magnusson, managing director of the SEK221bn (€25bn) Swedish buffer fund AP1, said he was not surprised by the announcement, with the ECB leaking many of the details ahead of yesterday's meeting.

"It was expected, and the perceived risks in the European market are decreasing, but that's for a shorter period when you consider the long-term problems," he said.

The reaction of €300bn Dutch asset manager APG was similarly muted.

"We welcome any step in the direction of a solution, but the effect of the ECB action must prove itself for the mid term," said spokesman Harmen Geers.

Bram van Els, spokesman for the €77bn asset manager MN Services, added: "For a real long-term solution, reforms are required, which is up to the politicians. However, the ECB's purchasing programme appeases the markets and buys much-needed breathing space for reforms."

UMR's Rey added that markets would not stay as bullish as today and said he expected to see negative movements due to some economic uncertainties in Spain and Italy before year-end.

The French fund saw the ECB's announcement followed by a decline in its fixed income portfolio spread, enabling it to increase its yield rate for 2012, he said.
Nevertheless, the announcement could lead to a number of problems for UMR.

"If there is a rally on Spanish and Italian debt due to the announcement made by the ECB, it will become extremely difficult for us to find new risk/return opportunities in the bond market," Rey said.
UMR has therefore started to diversify its fixed income portfolio by investing in high-yield bonds in highly rated European countries.