ECB ‘Closely Monitoring’ Bond Yields as Gains Spark Concern

European Central Bank President Christine Lagarde said her institution is “closely monitoring” the market for government bonds, in a sign that she might act to prevent rising yields undermining the economic recovery from the pandemic, Bloomberg News reported. Yields are on the increase worldwide as investors bet that vaccinations will soon enable countries to end coronavirus restrictions, potentially unleashing a burst of consumer spending -- also fueled by fiscal stimulus -- that could boost inflation. While the trend suggests optimism in the recovery, it could also stymie the rebound by boosting the cost of financing the massive public and private-sector debt burdens built up during the pandemic. The ECB has pledged to keep financing conditions favorable until the crisis is past. “Sovereign yields are particularly important,” Lagarde said at a European Parliament event on Monday. “Banks use those yields as a reference when setting the price of their loans to households and firms,” she said. “Accordingly, the ECB is closely monitoring the evolution of longer-term nominal bond yields." European yields fell after the comments, with German 30-years dropping 6 basis points to 0.15%. At the start of the year they were at around -0.20%. Read more.