European stocks rallied today after the announcement that the board of the European Central Bank will hold an extraordinary meeting to discuss the recent sell-off in government bond markets.
The Governing Council of the European Central Bank (ECB) is meeting today, at 12 noon (Greek time), to discuss the turmoil in the bond markets, underlining its concern about the explosion in borrowing costs of some Eurozone countries.
Bond yields rose sharply after the ECB announced last Thursday a series of interest rate hikes, while the spread between German bond yields and those of the southern debt-ridden countries, especially Italy, jumped to a two-year high. and more years.
“The Governing Council will hold an ad-hoc meeting on Wednesday to discuss current market conditions,” said an ECB spokesman. It is not clear, however, whether there will be any announcement, according to several sources familiar with the matter.
Invitations to the meeting were sent out on Tuesday and some board members, who were due to attend a conference in Milan today, canceled their attendance.
The last time the ECB held an emergency meeting, amid market pressures, it announced the 1.7 trillion contingent bond market program (PEPP). euros, which was its main tool during the pandemic.
The ECB’s options for tackling the so-called fragmentation risk – meaning that some Eurozone borrowing costs are significantly higher than others – include reinvesting bonds that expire in markets under pressure or designing a new instrument. Some analysts have warned, however, that reinvestment is unlikely to be enough on its own.
The debate at the ECB will take place on the same day that US Federal Reserve (Fed) is expected to raise interest rates, with investors having dramatically increased their bets by an increase of 75 basis points (three quarters of a percentage point). This shift in expectations has led to massive sales in global markets.
The news of the ECB meeting led to a strengthening of the euro by more than 0.5% to $ 1.0487 and the yields on 10-year Italian bonds to fall 22 basis points, while the futures prices of Italian shares rose significantly.
Earlier, the yield on 10-year German bonds, which is also the benchmark for the Eurozone, had reached 1.77%, the highest level since early 2014, while the spread of Italian 10-year bonds had increased to 240 bp. ., the highest level since the beginning of 2020.
ECB Executive Board member Isabel Schnabel, who is in charge of market transactions, said yesterday that the ECB was closely monitoring the situation and was ready to use both existing and new tools if a revaluation was found ( of bonds) from the market is ‘naughty’.
“We will not tolerate changes in financial conditions that go beyond the fundamentals and threaten the transmission of monetary policy,” Snabel said, adding that there were no limits to the ECB’s commitment to prevent fragmentation.
She argued that, as a first line of defense, the ECB could use the money from bonds expiring in pressured markets and, if necessary, the bank could design a new instrument.
However, Schnabel opposed the precautionary announcement of such a tool as it would have to be adapted to the specific situation with the terms, limits and safeguards being adjusted on a case-by-case basis.
Rally in European markets
European stocks rallied today after the announcement that the board of the European Central Bank will hold an extraordinary meeting to discuss the recent sell-off in government bond markets.
The index of shares in the euro area rose 1.3% at 10:06 Greek time, while the pan-European index STOXX 600 rose 0.8%.
Italian banking stocks, which have recently been hit by fears of rising borrowing costs in Rome, have rallied. Shares of Unicredit, Intesa Sanpaolo and BPER Banca rose between 4.5% and 6.5% while the broader Italian banking index strengthened by 6.4%.
The extraordinary meeting of the ECB is scheduled for 12.00 Greek time but it is not yet clear whether it will be issued after an announcement, said many sources familiar with the matter.
In Athenastock prices recorded a slight recovery, at the opening of today’s session, with the market trying to react after three downtrends during which the key stock index had recorded total losses of 7.94%.
The General Price Index at 11:00 is formed at 826.09 points, marking an increase of 0.40%.
