ECB "Will Expedite Measures"... Eurozone Government Bond Yields Fall for the First Time in 6 Days
by Park Pyunghee
Published 16 Jun.2022 13:18(KST)
[Asia Economy Reporter Park Byung-hee] The European Central Bank (ECB) has stated that it will not tolerate the rise in government bond yields of vulnerable Eurozone countries such as Italy and Spain, leading the Eurozone bond market to stabilize after six trading days.
According to major foreign media on the 15th (local time), Italy's 10-year government bond yield fell sharply by 0.35 percentage points from the previous trading day to 3.82%. This marks the first decline in Italy's bond yields in six trading days.
Italy's bond yields surged sharply starting from the ECB's monetary policy meeting on the 9th. Italy's 10-year bond yield, which was 3.30% on the 7th, soared to 4.17% the day before, reaching an eight-year high. During the same period, Spain's 10-year bond yield also surged from 2.39% to 3.05%, before falling to 2.86% on the 15th.
The ECB's announcement at the monetary policy meeting on the 9th to raise the key interest rate in July and to halt Eurozone bond purchases caused the bond yields of vulnerable Eurozone countries to rise sharply.
As the bond market showed signs of instability, the ECB convened an emergency meeting on the 15th. This was the first emergency meeting called by the ECB in over two years since the COVID-19 pandemic outbreak in March 2020.
In a statement released after the emergency meeting, the ECB explained that the Eurozone economy remains vulnerable due to the COVID-19 pandemic and that the normalization of monetary policy is being transmitted unevenly across member states. This has led to divergent reactions in bond yields between economically strong countries like Germany and vulnerable countries, widening the yield spreads among member states.
The ECB stated that it would expedite measures to address the soaring bond yields in vulnerable Eurozone countries to prevent such fragmentation.
Additionally, the ECB announced that the Executive Board would apply flexibility allowing the reinvestment of proceeds from maturing bonds. This is interpreted as creating room to continue purchasing bonds of vulnerable Eurozone countries such as Italy and Spain, which face risks due to high government debt, even after halting Eurozone bond purchases next month.
Analysts estimate that through reinvestment, the ECB could invest at least 200 billion euros this year in purchasing bonds of vulnerable countries.
However, some analyses suggest that the reinvestment of bond proceeds was already anticipated by the market.
Carsten Brzeski, investment strategist at ING, said, "The reinvestment of bond proceeds has already been priced into the market and is nothing new," adding, "The market is watching to see if the ECB will willingly introduce new measures." He also expressed expectations that the ECB will announce new measures next month.
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