ECB’s Schnabel Says Rising Yields Reflect Economic Turning Point

European Central Bank Executive Board member Isabel Schnabel played down concerns over rising borrowing costs as policy makers prepare for their next meeting, saying that higher bond yields reflect an improving economy.

“Rising yields are a natural development at a turning point in the recovery -- investors become more optimistic, inflation expectations rise and, as a result, nominal yields go up,” Schnabel said in an interview with Reuters. “This is precisely what we would expect and what we want to see.”

ECB’s Schnabel Says Rising Yields Reflect Economic Turning Point

Investors and economists are waiting to see if the economic upturn will prompt the ECB to scale back its emergency bond-buying on June 10. The central bank ramped up the pace of purchases under the 1.85 trillion-euro ($2.25 trillion) program in March, when the U.S. rebound was fueling a global rise in borrowing costs while the euro zone was in a double-dip recession.

Schnabel said that assessment hasn’t yet been made, but argued that the economy remains dependent on policy support and that “we always have to be willing to reduce or increase asset purchases in line with our promise to keep euro area financing conditions favorable.”

Economists and investors increasingly expect the ECB to stick to the elevated pace in the next quarter, after top officials pushed back against the idea that they’re ready to slow buying.

Executive Board member Fabio Panetta said this week he sees no justification for slowing purchases -- arguing there’s no evidence inflation pressures will be sustained -- and President Christine Lagarde said last week it’s “far too early” to discuss plans for removing stimulus.

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