EU ‘Fragmentation’ Accelerates As Markets Test Lagarde’s ‘Whatever It Takes’ Moment

ECB president Christine Lagarde went full hawktard yesterday with her promise to end bond-buying and hike rates (all in the face of staglfationary threats as The ECB cut growth and raised inflation outlooks).

However, she did offer some ‘silver lining’ in her comments on ‘fragmentation’ in European bond markets, promising that they had some ‘tools’ to solve that problem in a vague Draghi-esque “Whatever it takes” moment.

This morning, the market is calling her bluff…

European bond yields are blowing out with PIIGS notably decoupling with Italian bond yields at their highest since 2014…

Greek 10Y Yields are at their highest level since 2018…

More problematically, the yield spreads for peripheral European nations have been clubbed like a baby seal with Italy, Spain, and Portugal all getting hammered higher…

At the same time, European stock markets are tumbling with Italian equities hit hardest…

And finally, Italian ‘redenomination risk’ – roughly translated as the chance that Italy leaves the Euro – has accelerated notably to non-negligible levels…

So what happens next? Will Christine fold?

“Italian bonds will have to sell some more to get the ECB to do something about it,” said Rishi Mishra, an analyst at Futures First.