ECB’s Panetta says rising yields a drag on growth, not a crisis, ahead of rate meeting
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Panetta’s remarks put the focus on sovereign spreads, especially French and Italian debt against German Bunds, as the market’s main stress gauge in the euro zone. If US yields keep rising, the spillover he describes could push periphery spreads wider, a risk for Italian bonds giv
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The desk anticipates that the European Central Bank (ECB) will maintain its current interest rates during the upcoming meeting on October 29, largely influenced by the ongoing crisis in France. Per the full note from ING, the recent surge in bond yields linked to this crisis appears to have imposed a more contractionary monetary environment, which diminishes the necessity for the ECB to raise rates, despite persistent inflationary pressures. The recent dynamics indicate that market forces are effectively achieving a similar impact as a monetary policy adjustment, with German bond yields behaving as if a 25 to 50 basis point hike has already occurred in restricting economic growth. Additionally, the next significant meeting in December will bring new staff projections into play, which could guide future policy direction.
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