Der Spiegel Smells Smoke
Over the weekend German Newspaper Der Spiegel http://www.spiegel.de/international/europe/european-central-bank-may-set-yield-targets-for-bond-purchases-a-850979.html suggested the ECB was nearing a decision to cap yield differentials between German and peripheral counterparts. Earlier today the ECB stated “it is wrong to speculate on the shape of future ECB interventions,” adding “it is misleading to report on decisions which have not yet been taken.” While I believe that such action has not yet been delivered to the desks of the ECB Governing Council it does seem likely that the ECB has been studying ways to give action to ECB President Draghi’s words from August 2nd, where he alluded to the ECB intervening in the secondary market. Any such decision and action is likely to be proposed on September 6th.
It should come as no surprise that the Head of the Bundesbank, Jens Weidmann, is not in favor of such action, however it should also be noted that as long as the ECB sees this as being within their mandate to ensure price stability; then Weidmann’s lone voice may be drowned out by his ECB Governing Council counterparts.
Douglas C. Borthwick