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ECB holds extraordinary meeting to discuss bond market developments

The European Central Bank’s rate-setting Governing Council will hold an extraordinary meeting Wednesday to discuss the recent sell-off in government bond markets.

“The Governing Council will have an ad-hoc meeting … to discuss current market conditions,” an ECB spokesperson said, according to Reuters.

Ever since the ECB announced its plan for rate hikes last Thursday, bond yields have been soaring, while the premium that some member states pay over the risk-free German 10-year bond has spread. Ten-year German yields currently sit at 1.77 percent, while their Italian counterparts are 240 basis points higher — the largest spread since early 2020.

ECB executive board member Isabel Schnabel said on Tuesday said the central bank is “closely” monitoring the situation and that it’s ready to use both existing and new tools if it finds that the market repricing is “disorderly,” according to Reuters.

The ECB will “not tolerate changes in financing conditions that go beyond fundamental factors and that threaten monetary policy transmission,” she said. To ensure that, the ECB could deploy cash from maturing bonds into stressed markets and if needed.

To prevent further widening of the spreads, ECB President Christine Lagarde said in March the central bank could “design and deploy new instruments.”

After the announcement of the ad-hoc meeting, the euro appreciated 0.5 percent to 1.0475 against the U.S. dollar.

This article is part of POLITICO Pro

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