ECB’s Knot Says Rising Yields Reflect Optimism About Outlook

(Bloomberg) -- Rising government bond yields are a “positive story” because they reflect expectations for an improving economy, European Central Bank Governing Council member Klaas Knot said.

“There is reason to be optimistic about the second half of the year when the lockdowns will be lifted,” despite uncertainties about the current vaccination drive and businesses' health, Knot said in a webcast panel discussion on Thursday. “What the market is actually doing is pricing that optimism.”

The global sell-off of government bonds got kickstarted in the U.S., where prospects of more fiscal stimulus is bolstering the economy.

Greek and Italian 10-year yields have climbed more than 15 basis points in the past two weeks.

ECB officials have downplayed concerns about the rise, suggesting they can manage the risk with verbal interventions including a pledge to accelerate bond-buying, if needed.

Vice President Luis de Guindos said earlier this week that yields have risen from very low levels, while Bundesbank President Jens Weidmann argued that “the size of the movements is not such that this is a particularly worrisome development.”

Read More: ECB Downplays Yield Concerns, Signaling No Drastic Action Needed

Knot came out in favor of this view.

When the ECB's Governing Council discusses the subject next week, “the starting point should be that the rise in rates reflects better growth prospects and better, higher inflation expectations. That in and of itself is a positive story,” he said.

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