ECB’s Rehn underscores commitment to contain bond-market panic

European Central Bank (ECB) Governing Council member Olli Rehn said over the weekend that he wants to ensure that the fragmentation risks do not cause undue turbulence on government bond markets.

Key quotes

“We are firmly committed to contain unwarranted fragmentation that would impair monetary-policy transmission.”

 “We are fully committed to preventing fiscal dominance -- and/or financial dominance, for that matter.”

“In the case of more profound structural economic weaknesses and debt-sustainability problems, there is always the option to activate Outright Monetary Transactions, which would be preceded by a program of the European Stability Mechanism,” he said, referring to a tool designed a decade ago as ex-ECB President Mario Draghi pledged to do “whatever-it-takes” to save the euro.

The ECB is “likely to be able to exit negative territory in interest rates by the end of the third quarter.”

 The Governing Council held an emergency meeting Wednesday amid a surge in Italian yields. The ECB announced an introduction of a new instrument by its July policy meeting, which has calmed markets somewhat.

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