Investors are growing worried that if the European Central Bank signals too aggressive a tightening in monetary policy, it could trigger the type of bond market tumult that worsened the eurozone debt crisis a decade ago.
Government debt across the currency bloc has tumbled since last week’s ECB meeting, when president Christine Lagarde declined to rule out the possibility of a rise in interest rates this year as the central bank battles record high inflation. For bond investors, that prospect is particularly concerning because the ECB has repeatedly stressed that it will wind down its vast bond purchasing programmes before lifting rates.
“The ECB is the only thing that’s been keeping the bond market at bay and it being forced into retreat,” said James Athey, a portfolio manager at Aberdeen Standard Investments.