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2022/08/05 / Erste Group Research
Week Ahead

ECB, Monetary Policy Transmission and Spreads

On July 21, the ECB presented the Transmission Protection Instrument (TPI). With this, the Governing Council has given itself a third tool to prevent the fragmentation of the euro area through the divergent transmission of monetary policy. What do these technical terms mean? At the core, it is about the possibility to counter a rapid rise in the yields of individual countries’ government bonds, if necessary.

On July 21, not only was the TPI presented, but Italian Prime Minister Draghi also announced his resignation. Nevertheless, the yield spreads between Italian and German government bonds have actually narrowed since, a change to which the ECB’s measures have probably made a significant contribution. The further development of yield spreads will depend on political decisions and risks. In concrete terms, it is therefore in the hands of Italian politicians during the election campaign and the subsequent formation of a government to move the markets or not. Higher key interest rates per se, together with the stabilizing effect of the ECB programs, should not trigger a sell-off.

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General information

AuthorErste Group Research
Product typeweekly / bi-weekly
Product nameWeek ahead
Topic in focusMacro/ Fixed income
Market cap-
AvailabilityAll [1]


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