The German newspaper Der Spiegel yesterday reported that the ECB “is considering establishing caps on interest rates for government bonds in individual countries as part of its future bond buying program. Under the plan, the ECB would begin purchasing government bonds from crisis hit countries if yields for those bonds exceeded the interest rates for benchmark German sovereign bonds by a predetermined amount.” Not long after, the German Finance Ministry spokesman said he knew of no plans for ECB interest rate targeting and said “theoretically speaking, such an instrument is certainly fraught with problems.” Also, in its monthly report the Bundesbank “remains critical of ECB purchases of government bonds” and said “government solvency risks mustn’t be shared via ESM bank aid.” Since, the ECB came out in response to the Der Spiegel artilce and said bond yield targets have not been discussed by the council, it’s ‘wrong’ to speculate on the shape of future bond buying and it ‘will act strictly within its mandate.’ Following the ECB comments, yields in Spain and Italy are off their lows of the morning and the IBEX and MIB gave back their earlier gains. With respect to Greece, Samaras will meet this week with Merkel and Hollande to discuss again their budget progress. In Asia, the Shanghai index intraday did trade to its lowest since Mar ’09 but bounced off its lows to close only at a 3 week low after a story was published saying the PBOC was not cutting RR in the short term.

Category: MacroNotes

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