Faced with the rise in interest rates on euro-area countries’ sovereign debt, the Governing Council of the European Central Bank (ECB) unexpectedly gathered on Wednesday, 15 June—less than a week after it announced the methodology it would use to gradually increase the three key interest rates starting in 21 July (see EUROPE 12968/1).
It notably asked its services to “accelerate the completion of the design of a new anti-fragmentation instrument” in the euro area, according to a press release.
This announcement has, at this point, put a stop to the widening of interest rate spreads between the 10-year German bund and those of highly indebted countries. The rate on the Italian bond had recently risen above 4%.
The ECB stresses that, even in the context of normalising its monetary policy, it will act against the resurgence of any fragmentation risks. It reiterates that it will act with “flexibility” in reinvesting the sums generated by the redemption of maturing securities acquired as part of the ‘PEPP’ operation that has been active during the Covid-19 pandemic.
This flexibility will concern the volume and nature of the acquired securities as well as the geographical location of the issuers.
See the Governing Council’s statement: https://aeur.eu/f/252 (Original version in French by Mathieu Bion)