MNI US Open: ECB Officials Wary Of Surging Yields

EXECUTIVE SUMMARY:

• SCHNABEL SAYS E.C.B. MAY NEED TO ADD SUPPORT IF YIELDS HIT GROWTH
• LANE SAYS E.C.B. WATCIHNG YIELDS BUT NOT CONTROLLING CURVE
• PFIZER-BIONTECH VACCINE COULD SIGNIFICANTLY REDUCE TRANSMISSION RISK AFTER A SINGLE DOSE -UK STUDY
• MERKEL SIGNALS SHE'S READY TO RETHINK GERMANY'S LOCKDOWN PLAN

Fig. 1: E.C.B. Officials Eyeing Rising Yields

BBG

NEWS:

ECB (BBG): The European Central Bank may need to boost its monetary support for the economy if rising government borrowing costs hurt growth, Executive Board member Isabel Schnabel said. "A rise in real long-term rates at the early stages of the recovery, even if reflecting improved growth prospects, may withdraw vital policy support too early and too abruptly given the still fragile state of the economy," she said in a virtual conference on Friday. "Policy will then have to step up its level of support."Isabel Schnabel. Schnabel's remarks add to a sense of concern from the ECB that the bond market threatens to stifle the euro region's recovery even before it's begun.

ECB (RTRS): The European Central Bank is monitoring the recent surge in government bond borrowing costs but will not engage in controlling the yield curve, ECB chief economist Philip Lane told a Spanish newspaper. "At this stage, an excessive tightening in yields would be inconsistent with fighting the pandemic shock to the inflation path," he told Expansión in an interview. "But at the same time, it is crystal clear that we are not engaged in yield curve control, in the sense that we want to keep a particular yield constant," he added.

ECB: Key excerpts from Lane interview below (note these are not the full answers to any questions, for more see the full interview here):

• Asked whether if lockdowns are extended forecasts will be revised lower: "If the lockdown lasts a few weeks longer it won't have much of an impact on the final growth picture in 2021. We think a lot of the pandemic shock will have been offset by the end of the year."
• Asked if ECB debt purchases can be effective if bond yields increase due to inflation expectations rising he said: "There is more than one mechanism through which asset purchasing can influence the market. But at the same time, it is crystal clear that we are not engaged in yield curve control, in the sense that we want to keep a particular yield constant. With the purchase programme we are trying to move the curve in a certain direction and with enough force to support inflation dynamics."
• Q: You always repeat this, but is lowering rates further really an option? A: "We wouldn't say we could use this tool if we didn't believe it. When we say that we can move rates lower [the deposit facility rate is currently -0.5 per cent], we do all sorts of calculations and analytics to make sure that it's a credible and honest statement."

PFIZER/COVID (RTRS): A single dose of the Pfizer COVID-19 vaccine developed in partnership with BioNTech could significantly reduce the risk of transmission after a single dose, results of a UK study found on Friday. Researchers analysed results from thousands of COVID-19 tests carried out each week as part of hospital screenings of healthcare staff in Cambridge, eastern England.

GERMANY (BBG) Chancellor Angela Merkel opened the door to a looser approach to managing Germany's coronavirus outbreak, as she faces pressure to ease curbs despite resurgent infections. For months, Merkel has relied on the so-called incidence rate to determine pandemic policy. First, she set the threshold at 50 infections per 100,000 people over seven days and then lowered it to 35 to unwind lockdown restrictions locally.She now appears to be backing away from a rigid reliance on the metric, with no signs that the country can hit her targets.

US-SYRIA (BBG): The U.S. carried out air strikes in eastern Syria overnight on sites connected to Iranian-backed groups believed to be involved in recent attacks in Iraq, the first overt use of military force under President Joe Biden. The assault came after a series of rocket attacks in recent days on facilities in Iraq used by the United States, including one that killed a contractor working with the U.S.-led coalition in the country.

SWEDEN (MNI INTERVIEW): Liquidity has improved in Sweden's domestic sovereign debt market as Riksbank quantitative easing slows, the head of debt management at the Swedish National Debt Office told MNI, adding that the country will continue to borrow in foreign currency and could diversify beyond dollars and euros. For full article contact sales@marketnews.com

BOJ: The Bank of Japan will keep to the same frequency and the scale of JGB buying operations in March as in February, the bank said Friday, as financial markets await the result of next month's policy review, to see if the bond-buying framework changes.

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