Mark Gilbert , Columnist

Bond Market Tantrum Should Give ECB Moment of Pause

Rising yields threaten to tighten monetary conditions before the euro-zone economy is able to cope with higher borrowing costs

February 8, 2022 at 7:00 AM UTC

By Mark Gilbert

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. A former London bureau chief for Bloomberg News, he is author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

Jean-Claude Trichet, former president of the European Central Bank.
Photographer: Marlene Awaad/Bloomberg

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The European Central Bank has sparked a bond-market tantrum by suggesting inflation may be running so hot that it needs to raise borrowing costs this year. Policy makers should be mindful of what happened a decade ago, when two interest-rate increases in the space of three months had to be quickly reversed.

At the end of 2010, euro-zone inflation started to poke above the central bank’s 2% target, and stayed there just as wounded economies were struggling to recover from the global financial crisis. In April 2011, with consumer prices rising at an annual pace of 2.6%, the ECB raised its key policy rate by a quarter-point to 1.25%. “We always do what is necessary to deliver price stability,” then-ECB President Jean-Claude Trichet said.