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Credit Insights

Draghi Pulls Off a Stick Save

The ECB must weigh several important implications as it contemplates following through on the market intervention implied by its president last week.

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Just as it started to look like the Spanish bond market was about to come unraveled, Mario Draghi, president of the European Central Bank, stepped in to save the day. Spanish bond yields spiked at the beginning of last week and hit new highs. On Thursday, Draghi was quoted as saying that the risk premia inherent in widening sovereign spreads was impeding monetary policy transmission, and addressing this risk premia is thus within the ECB's mandate.

The markets construed his comments to mean that the ECB would intervene in the markets and begin purchasing Spanish bonds through the Securities Markets Program. Bond traders immediately began purchasing Spanish bonds to essentially front-run ECB buying, pushing the yield on two-year Spanish bonds down to 5.30% from a midweek high of 6.64%, and the Spanish 10-year down to 6.74% from a midweek high of 7.62%.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.