The European Central Bank has called an unscheduled meeting of its governing council to discuss the recent sell-off in bond markets, raising the prospect it could announce a new tool to tackle surging borrowing costs in weaker eurozone economies.
The ECB said: “The governing council will have an ad hoc meeting on Wednesday to discuss current market conditions.”
The move raised investor expectations that it was preparing to announce a policy instrument to prevent the recent sell-off in bonds of certain countries from triggering another debt crisis in the region.
The euro reversed some of its losses, rising 0.5 percentage points against the dollar to $1.0475 early on Wednesday, after the ECB statement was reported by newswires.
Borrowing costs for heavily indebted countries such as Italy and Spain have shot to eight-year highs, since the ECB last week signalled an end to the ultra-loose monetary policy of the past decade by announcing plans to stop buying more bonds and to start raising interest rates.
The gap between Italian and German borrowing costs — the so-called spread — has widened to 2.4 percentage points, double last year’s level and up from about 2 percentage points before last week’s ECB meeting.
ECB executive board member Isabel Schnabel indicated in a speech on Tuesday evening that the central bank was getting closer to the point where it would intervene in bond markets, saying “some borrowers have seen significantly larger changes in financing conditions than others since the start of the year”.
She added: “Such changes in financing conditions may constitute an impairment in the transmission of monetary policy that requires close monitoring.”