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ECB sees "severe distortions" in bond markets

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FRANKFURT, Oct 11 (Reuters) - There are severe distortionsin euro zone sovereign bond markets stemming from unfoundedinvestor fears about a potential break-up of the singlecurrency, the European Central Bank said in its monthly bulletinon Thursday.

The ECB said its new bond-purchase plan - dubbed "OutrightMonetary Transactions", or OMT - was a "necessary, proportionaland effective" instrument to ensure the transmission of itsmonetary policy across the euro zone.

The ECB says tensions in bond markets have disrupted thetransmission of its monetary policy.

"The current situation is characterised by severedistortions in government bond markets which originate, inparticular, from unfounded fears on the part of investors of thereversibility of the euro," it said in the bulletin.

(Writing by Paul Carrel)

((paul.carrel@thomsonreuters.com)(+49 69 7565 1313))

Keywords: ECB/MARKETS DISTORTIONS