Italian borrowing costs fall sharply as ECB launches $820 billion coronavirus package

Italian borrowing costs fell sharply Thursday morning as investors reacted to a massive new bond-buying program from the European Central Bank (ECB). The ECB on Wednesday evening announced a 750 billion euro ($820 billion) asset purchase program in an effort to help mitigate the impact of the coronavirus outbreak, as the death toll in Europe continues to rise.

The central bank said that it would buy public and private securities to counter the “serious risks” of the coronavirus. The so-called Pandemic Emergency Purchase Program (PEPP) will last until the end of the year. The central bank had been criticized since Lagarde last week told a press conference that the bank’s role was not to close the spread in sovereign debt markets. Her comments sent Italian borrowing costs up as a result. Her predecessor, Mario Draghi, reassured financial markets in 2012 — the height of the sovereign debt crisis — that the ECB would do “whatever it takes” to save the euro.

However, investors responded positively to the ECB’s latest coronavirus package. The yield on the 10-year Italian bond dropped to as much as 1.542% Thursday morning, having traded at 2.5% on Wednesday. Yields move inversely to bond prices. The coronavirus, which started in China in late 2019, has brought the major euro economies to halt, with Italy, France, Spain and Belgium in total lockdown. Data has also shown that the virus has infected and killed more people in Europe than in China, The New York Times reported.

The new asset purchase program will also include Greek securities. Greek government bonds have not featured in the central bank’s previous asset purchase programs as they did not have enough investment credibility in the wake of the sovereign debt crisis. “We couldn’t hope for more. The inclusion of Greece and corporate commercial paper were the cherries on the QE (quantitative easing) cake,” Frederik Ducrozet, senior economist at Pictet Wealth Management, said in an email Wednesday.

Italian borrowing costs fall sharply as ECB launches $820 billion coronavirus package, CNBC, Mar 19