The President of the ECB, Christine Lagarde, warns that the rise in debt yields will slow the eurozone economy. The German 10-year bond exceeds 3.6%, its highest level since 2009.
The President of the European Central Bank (ECB), Christine Lagarde, has stated that the sharp rise in sovereign bond yields will weigh down economic growth in the eurozone. During her appearance before the European Parliament in Brussels, Lagarde explained that since the ECB meeting on September 10, "long-term interest rates have risen significantly, which will slow growth," according to eleconomista.com.mx.
The eurozone debt market is experiencing a wave of sales driven by expectations of more persistent inflation and forecasts of further interest rate increases. This is compounded by concerns over a prolonged conflict in the Middle East, which could further drive up energy costs and consumer prices, leading central banks to maintain monetary tightening.
The yield on the German 10-year bond, a benchmark for the eurozone, has climbed to exceed 3.6%, its highest level since 2009. In the United States, the 10-year Treasury yield reached its highest level since 2007 last week, and the 30-year yield, since 2004.
Inflation in the 21 euro countries accelerated to 3.2% annually in August, and is expected to continue rising this month. Lagarde acknowledged that risks point to higher inflation, as well as the danger that governments will approve generous aid to protect consumers from rising energy costs.
Despite this scenario, the ECB President stated that there are still no signs that inflation is spreading beyond energy prices to the rest of the economy. "We remain on the 'middle path' in terms of monetary policy. This means that, although the impact is too significant to ignore, we believe that a measured response is appropriate to keep inflation under control," she declared.
"Long-term interest rates have risen significantly, which will slow growth"
Lagarde did not elaborate on what she means by "measured response," although economists point out that the first two rate increases, three months apart, are a good reference. The ECB already raised rates at its meeting on September 10, the second increase this year.
The rise in debt yields could also mitigate inflationary pressures by limiting the impact of higher energy costs on the overall economy, Lagarde indicated.
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