Treasury Pain Is Starting to Hurt Europe
Four ECB members have recently said they’re monitoring rising bond yields. These words are not enough.
Prepare for a new dawn.
Photographer: ARMANDO BABANI/AFPThe reflation trade that’s driven benchmark 10-year Treasury yields to their highest level in a year is causing real pain in European bond markets. With the risk that higher borrowing costs will hinder efforts to rehabilitate the pandemic-stricken economy, verbal intervention by the European Central Bank has thus far proven ineffective in capping levels. More explicit action may be required.
The jump in government borrowing costs is making central bankers nervous. “We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions,” ECB Chief Economist Philip Lane said on Thursday. Higher borrowing costs “could jeopardize the economic recovery,” executive board member Isabel Schnabel said on Wednesday.