What’s going on?

• The European Central Bank promised to keep eurozone bond yields from rising.

What does that mean?

• Like the US, the eurozone’s pumped lots of money into the economy to keep things stable throughout the pandemic.
• Now that a recovery’s near, investors are worried that those money would lead to inflation, forcing the central bank to prematurely raise interest rates. But the ECB is confident that recent inflation was only short-term (fueled in part by tax hikes and higher energy prices), and won’t hit the long-standing target over the medium term.
• The central bank’s plan now is to keep the current interest rates and speed up its bond-buying.

Why should I care?

For markets: The ECB is keeping bond yields down

• Accelerating bond-buying would technically increase demand for eurozone bonds, pushing their prices up and their yields down, signaling that borrowing money in Europe is still cheap, encouraging investments in economy-growing activities.
• Immediately after the announcement, for example, Italy’s 10-year government bond yields dropped.

The bigger picture: US is not as clear though

• ECB’s message was clear: rising bond yields are a concern even if inflation isn’t.
• On the US side, however, FED confused investors by saying it wasn’t anticipating any changes to its interest rate policy, suggesting future adjustments despite the the improving economic growth outlook.

Content source: Finimize (2021) Soothe Operator. Available at: https://www.finimize.com/wp/news/soothe-operator/ [Accessed on Mar 12, 2021]