European markets have once again flattered to deceive today, starting off in promising fashion, before slipping back into the close, with US markets, and rising bond yields acting as a little bit of a drag.
While rising US yields have been attracting the most attention, we’re also seeing some evidence of a tightening of financial conditions here in Europe, with sharp rises in government borrowing costs from Germany to Greece.
The European Central Bank certainly appears to be becoming concerned about just such a scenario with Chief economist Philip Lane saying that the ECB is prepared to buy bonds flexibly in order to prevent just such a fiscal tightening. The problem the ECB has is that the bond market doesn’t appear to be listening.