ECB policymaker, Ignazio Visco, noted yesterday on the spread that “levels above 200 bps are not justifiable” and that “a differential of less than 150 bps would be justified by the fundamentals”. I’m not sure what “fundamentals” he is referring to but if the ECB decided to lay down a challenge to markets, they should have been best be prepared to take it on the chin when it came.
Regardless, policymakers can breathe a little easier for now as European bond markets are responding accordingly but there needs to be more details and a solid plan to calm the nerves for a sustained period. I’m not sure if a solution of ‘QE but not exactly QE’ will do the trick but at least the spreads are “normalising” for now.
This article was originally published by Forexlive.com. Read the original article here.