The ECB Needs an Inflation Plan, Just in Case


Nearly three weeks after the European Central Bank halved the pace of its monetary stimulus to the euro zone economy, something strange is happening in the sovereign debt market. Even as the ECB takes a little step back from quantitative easing, investors are continuing to pile into government bonds, particularly from some countries that were most affected by the crisis. The risk is that markets may be in for a rude awakening. The cases of Italy, Spain and Portugal best represent this trend. The Italian 10-year bond yield has fallen by 20 basis points to 1.82 percent since the ECB announcement. The interest rates on similarly dated Portuguese and Spanish debt have decreased, respectively, by 30 and 11 basis points, to 1.95 percent and 1.52 percent. True, the ECB has extended purchases to September, and has left it open what it intends to do next. Even then, however, this does not look like the reaction to a monetary tightening…

Read more : Bloomberg, 14.11.2017