“The ECB’s decision today to step-up the pace of its purchases suggests that the central bank will continue to underpin the sovereign bond market for some time yet,” notes Capital Economics economist Simona Gambarini. “This supports our view that the yields of 10-year government bonds in the euro-zone “periphery” will end 2021 lower than they are now.”
Key quotes
“After offering nothing beyond rhetoric to limit the sharp rise in yields of the past few weeks, the ECB has delivered a dovish surprise at its meeting today. In its statement, the Bank pledged to increase the pace of its asset purchases under the Pandemic Emergency Purchase Programme (PEPP) “significantly” over the next quarter.”
“It also vowed to “purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions”. President Lagarde stressed the ECB’s commitment to maintaining favourable financing conditions further during her press conference.”
“Although she rejected the notion that this constitutes yield curve control, the Bank may put more emphasis on preventing yields from returning to the levels they peaked at in late February, in other words targeting price rather than quantity.”
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