The returns on government bonds they have become much more attractive for those who invest now, while companies and households have to contend with higher rates on loans. These are the consequences ofsurge in inflation and the consequent decisions of central banks. A glimpse of this situation is offered by the Ten-year BTP whose return today has returned to touch the psychological threshold of 2%, to then retrace to 1.99%. It is the first time since May 2020 that this has happened. The Spread between the BTP and the ten-year German bund it widens by two basis points, per share 167 points.
Government bonds: what’s behind the rise in yields
The rise in government bond yields reflects investor fears for one gradual reduction of bond purchases by the ECB in the next months. A fear fueled yesterday by the words of the member of the Governing Council and president of the Bank of France, Francois Villeroy de Galhauwhich, in a speech to the London School of Economics, said that Frankfurt could end the asset purchases of the conventional ‘App’ program already in the third quarter of 2022.
“I still think it’s useful to have a bit of a transition between ending Pepp’s net purchases (the pandemic plan, ed.) In March and ending the App plan’s net buying,” Villeroy said, adding that at one point we could start discussing ending “third quarter purchases”.
Villeroy then said that the first point that the ECB’s Governing Council should consider at its next meeting in March is the calendar of net purchases of government bonds. “Keeping them open from October would not be appropriate, as it could tie our hands too long,” he stressed, adding that “now there are far fewer reasons to keep pressing the accelerator pedal as we increase our stock of assets, as inflation is converging towards our 2% target ”.
However, the Governor of the Bank of France continues to believe that it is useful to allow some time to pass between the end of the net purchases of PEPP in March and the end of the net purchases of APP. “But this reduction could follow a bimonthly or monthly rather than quarterly pace, and therefore APP purchases could end in the third quarter“, He pointed out.
What analysts think
The analysts of MPS Capital Services also spoke on the issue of yields and purchases of government bonds by the ECB.
“Although the matter is not yet closed, the attention of the markets turns to central banks. ECB members no longer hide concerns about persistent inflation. The issue was addressed by two ECB members, with the Schnabel who said that the “unprecedented” rise in house prices should be taken into account in the calculation of inflation and Villeroy said that the calendar of APP purchases will be reconsidered in March, which could be completed by the third quarter. On the central bank front, the minutes of the Fed meeting in January are expected tonight, from which interesting details could emerge on the path of normalization of monetary policy “explain the analysts of Mps Capital Services.