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ECB sees "severe distortions" in bond markets

FRANKFURT, Oct 11 (Reuters) - There are severe distortions in euro zone sovereign bond markets stemming from unfounded investor fears about a potential break-up of the single currency, the European Central Bank said in its monthly bulletin on Thursday.

The ECB said its new bond-purchase plan - dubbed "Outright Monetary Transactions", or OMT - was a "necessary, proportional and effective" instrument to ensure the transmission of its monetary policy across the euro zone.

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

"The current situation is characterised by severe distortions in government bond markets which originate, in particular, from unfounded fears on the part of investors of the reversibility of the euro," it said in the bulletin.

(Writing by Paul Carrel)

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

Keywords: ECB/MARKETS DISTORTIONS