ECB’s Lagarde: Closely Monitoring Longer-Term Nominal Bond Yields

23 February 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is watching longer-term nominal bond yields particularly closely in assessing the state of financing conditions, ECB President Christine Lagarde said Monday.

In a speech at the opening plenary session of the European Parliamentary Week 2021, a text of which was posted to the ECB’s website, Lagarde vowed that the ECB would preserve favourable financing conditions for the duration of the pandemic.

The many indicators of financing conditions, she said, included risk-free rates, government borrowing costs, capital markets and bank lending. However, she said, ‘risk-free overnight indexed swap (OIS) rates and sovereign yields are particularly important, because they are good early indicators of what happens at downstream stages of monetary policy transmission, since banks use those yields as a reference when setting the price of their loans to households and firms.’

‘Accordingly, the ECB is closely monitoring the evolution of longer-term nominal bond yields’, she added.

The ECB policy measures would ‘bridge the gap until widespread immunity is achieved’, she assured, observing that it was ‘still highly uncertain how the next stages of the pandemic will unfold.’

The ECB’s pandemic emergency purchase programme (PEPP) ‘will continue to be a crucial tool’, while its targeted longer-term refinancing operations (TLTROs) would ‘remain an attractive source of funding for banks’, she said.

For favourable financing conditions to have the greatest impact, however, national measures must be part of the policy mix, she stressed.