European Economics

Should we worry about the “Draghi put”?

European Economics Focus
Written by Capital Economics Economist

The ECB has effectively introduced a “put” option on peripheral bonds, pushing yields and spreads down to record lows. Given recent fiscal progress and the likelihood that the ECB normalises policy very slowly, we doubt that yields will soar. But there is a risk of a sell-off if governments become reckless and splurge on spending, or if inflation picks up much more quickly than most investors expect.