EMU-average yield surge warrants country-neutral QE
Simon Ward
Post a Comment
The average 7-10 year Eurozone government bond yield – derived from country yields using debt weights – has risen by 90 basis points since early October, returning to the post-2008 peak reached in July. (The average yield is calculated by Thomson Reuters Datastream from data on 12 markets including the three bail-out countries.)
The increase reflects contagion into the core together with stability in German yields, a fall in which had previously provided an offset to rises elsewhere – capital fleeing other markets may now be leaving the euro area rather than seeking a “safe haven” in Bunds.
The yield rise threatens an inappropriate tightening of monetary conditions and warrants offsetting ECB action in the form of further rate cuts and an expansion of bond buying, though spread across national markets in proportion to GDP rather than focused on Italy and Spain. Such a country-neutral strategy would insulate the ECB from German criticism of launching a backdoor fiscal bail-out for peripheral miscreants.
View Printer Friendly Version
Email Article to Friend
Reader Comments