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Draghi Risks Meaningless Program on Maturity Scope, Rieger Says

The master plan European Central Bank President Mario Draghi presented yesterday may be “meaningless” if it is restricted to buying government debt with maturities of less than a year, said Christoph Rieger, head of interest-rate strategy at Commerzbank AG.

“Obviously, if this were to be the case, the entire program would be meaningless,” Rieger said in an e-mailed note from Frankfurt today. “Should tensions continue in coming days with markets realizing that a short-end focus will simply not be enough, quite likely the ECB will be required to broaden the maturity scope when announcing the detailed program.”

The ECB is developing a plan that would allow policy makers to wade forcefully into bond markets to reduce borrowing costs in tandem with Europe’s rescue fund. Draghi said yesterday that potential bond purchases would focus “on the short end of the yield curve” because “this falls squarely within the range of classical monetary policy instruments.”

While the ECB has provided banks with unlimited liquidity for three years, the “normal” lifetime for refinancing loans ranges “from six months to nine months to a year,” he said.

Rieger said Draghi’s comments at a Frankfurt briefing seemed to imply that the ECB won’t buy debt with a maturity of more than a year, which was a “major blow for the markets.”

The euro initially climbed as much as 0.5 percent to $1.2405, the highest level since July 5, after Draghi’s remarks before declining. It traded at $1.2198 at 9:47 a.m. in Frankfurt.

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