(BN) ECB Said to See No Need for Drastic Action to Curb Bond Yields

 

 

ECB Said to See No Need for Drastic Action to Curb Bond Yields
2021-03-03 09:34:52.538 GMT

By Carolynn Look and Alexander Weber
(Bloomberg) — European Central Bank policy makers see no
need for drastic action to combat rising bond yields, believing
the risk to the economy is manageable with verbal interventions
and the flexibility of their bond-buying program, according to
officials familiar with internal discussions.
While multiple Governing Council members have spoken out to
say that higher yields may be unwarranted and could undermine
the euro zone as it struggles with extended pandemic lockdowns,
there is no sense of panic, the officials said.
A step such as expanding the size of their emergency bond-
buying program is currently unnecessary, they said. They didn’t
say whether purchases have been stepped up in recent days, using
the much-touted flexibility of the program.
One official noted that yields fell on Monday after some
policy makers said the ECB would react against unwarranted
yields.
An ECB spokesman declined to comment.
Executive Board member Fabio Panetta was the latest in a
raft of Governing Council members to address the topic on
Tuesday. He said the jump in government-bond yields seen “is
unwelcome and must be resisted.” He also said it is “not too
late” to act.
French Governing Council member Francois Villeroy de Galhau
said on Monday that the ECB “can and must react” to any
unwarranted moves threatening to undermine the economy. Vice
President Luis de Guindos argued that it’s key to understand why
bond yields have risen, and said officials “have the flexibility
that is needed in order to react.”
More policy makers are scheduled to speak on Wednesday,
including Bundesbank President Jens Weidmann and Bank of Spain
Governor Pablo Hernandez de Cos.

Bond Selloff

Yields on euro-area debt have risen since mid-February,
when expectations for reflation kicked a global bond selloff
into high gear. Greek and Italian 10-year yields led the charge,
climbing about 20 basis points in the past two weeks.
Core European debt was also ensnared, with benchmark German
yields climbing to levels last seen in March 2020 and French
yields turning positive for the first time since June.
Higher government bond yields pose a problem for the euro
area because they are used by banks as a reference point for
lending. The region’s recovery is already expected to be slower
than that of many other advanced economies, in part due to its
slow vaccine roll-out, and higher borrowing costs could further
damp momentum.
Yields are being pushed up by a global sell-off of longer-
term government bonds originating in the U.S. where prospects of
another dose of massive fiscal stimulus are bolstering the
economy.
Figures published this week surprised investors by showing
that the central bank actually slowed purchasing last week,
despite President Christine Lagarde saying policy makers are
“closely monitoring” the rise in nominal bond yields.
Those figures don’t reflect orders made Thursday and
Friday, as transactions take a couple of days to settle and show
up in the central bank’s accounts. This week’s purchasing data
will be published next Monday and Tuesday.
*T
Read more…
ECB Slows Bond-Buying Despite Strong Warnings on YieldsECB
INSIGHT: Time for Lagarde to Send Markets a Real Message
*T

To contact the reporters on this story:
Carolynn Look in Frankfurt at clook4@bloomberg.net;
Alexander Weber in Brussels at aweber45@bloomberg.net
To contact the editor responsible for this story:
Paul Gordon at pgordon6@bloomberg.net

 

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