The European Central Bank announced Wednesday it plans to create a new tool to tackle the risk of fragmentation in the euro zone.
It comes after the central bank surprised market participants with an emergency meeting to address higher borrowing costs for many European governments.
The recent surge in bond yields followed a regular meeting from the central bank last week, in which the ECB suggested more aggressive policy tightening but failed to deliver any new measures to support highly indebted nations in the bloc.
This sparked some nervousness among money managers about financial fragmentation and led to an increase in bond yields.
Italy’s 10-year bond yield crossed the 4% mark earlier this week — with one economist saying these levels “could eventually turn into a problem” for the south European nation.
Isabel Schnabel, a member of the ECB’s executive board, said in Paris, France on Tuesday: “Our commitment to the euro is our anti-fragmentation tool. This commitment has no limits. And our track record of stepping in when needed backs up this commitment.”
Euro zone bond yields fell on Wednesday morning following the surprise announcement of an emergency meeting.
The euro, meanwhile, traded higher against the U.S. dollar on expectations that the ECB could introduce measures designed to avoid fragmentation.
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