Bond Market Spooks ECB Into Doing...Nothing
Policy makers will need to come up with a credible plan to defend the borrowing costs of the euro area’s weaker members.
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Photographer: Alex Kraus/Bloomberg“It is not a something, but not a nothing either.” The philosopher Ludwig Wittgenstein was writing about the impossibility of discussing private sensations such as pain; But he could have been describing today’s European Central Bank statement following an emergency meeting of policy makers that took more than three hours to produce fewer than 150 words.
European bond traders had interpreted Wednesday’s surprise Governing Council conclave as portending urgent action to soothe a market that had driven Italian 10-year yields above 4% for the first time since 2014, with borrowing costs for Greece, Spain and Portugal also surging. Yields duly declined amid hopes for a more substantive plan to defend the euro zone’s weaker members than President Christine Lagarde’s vague talk of flexible reinvestment of the central bank’s bond holdings. Instead, markets were served a nothing burger, in a stunning failure of expectations management and central bank communication.