ECB ready to close bond spreads amid virus, says Italian board member
The European Central Bank (ECB) stands ready to reduce bond spreads between Eurozone countries and could even further increase its purchases amid the coronavirus outbreak, a board member said today as the Bank continues to row back on comments from its president.
Christine Lagarde, who took over as president from Mario Draghi last November, upset markets last week when she said the ECB is “not here to close [bond] spreads” – the difference in price between Eurozone members’ bonds, which is an indication of the stress countries are under.
Markets read the comments as a sign the Bank might not do “whatever it takes” to support the Eurozone economy as it did eight years ago. But many defended Lagarde’s comments, saying they were meant to encourage Eurozone governments to do more.
ECB board member Fabio Panetta today told Italian newspaper Corriere della Sera that the Bank will tackle “strong, unjustified increases in the spreads on the back of the health emergency”.
Italian bond yields last week jumped as Covid-19 containment efforts ravaged the countries’ economy. Yields move inversely to prices, with a fall indicating Italian government debt does not look attractive to investors.
“The turbulence that struck the Italian sovereign bond market in the last few days is an undesired event that must be reabsorbed,” Panetta, himself Italian, said.
The ECB last week said it would increase its bond-buying stimulus programme in response to the outbreak.
Panetta said it could yet buy more bonds, and may lend to institutions other than banks.
“If it becomes necessary to carry out our monetary policy or preserve financial stability, the governing council could consider if and how to broaden the number of intermediaries it supplies liquidity to,” he said.