Brussels (Brussels Morning) The European Central Bank (ECB) is maintaining record low interest rates and not rushing to phase out the aggressive stimulus measures that were introduced to mitigate the negative effects of the coronavirus crisis.
ECB President Christine Lagarde noted in an interview with Politico that the central bank would wait for the economy to reach sustainability before it discusses plans to start withdrawing emergency support, Reuters reported.
Last week, the ECB agreed to keep borrowing costs at record low levels. The European Parliament did not discuss whether emergency support should be tapered off as the eurozone economy continues to bounce back from the coronavirus crisis slump.
On Monday, ten-year borrowing costs for Italy, one of the largest beneficiaries of the ECB’s bond-buying spree, dropped to 0.74%, the lowest level in close to eight weeks.
German Commerzbank rates strategist Rainer Guntermann noted that the ECB upped its 2021 growth outlook for Italy to 5% on Friday, which improved sentiment.
Italian bonds outperforming
Italian bonds “continue to outperform, helped by upbeat GDP projections from the Bank of Italy on Friday”, he observed. He noted too that the ten-year spread with German bonds was “flirting with the 100 basis point level, with the February-lows at 90 basis points also moving in sight”.
The spread between German and Italian ten-year bond yields stood at 102 basis points early on Monday. Germany’s ten-year bond yield was roughly one basis point higher than the multi-week low on Friday and stood at negative 0.28%.
In a period of record-low interest rates, the EU is preparing to become the largest issuer globally as it sets its sights on bond issues worth 800 billion euro to raise money for the coronavirus crisis recovery fund.The bloc has issued bonds worth 80 billion euro this year to finance the recovery fund. Analysts expect the EU to start the borrowing spree with ten-year bonds worth approximately 11 billion euro.