European Central Bank to create new tool to address fragmentation risk after bond yields surge

Christine Lagarde, President of the European Central Bank. The central bank scheduled an emergency meeting to address higher bond yields.

A new tool will be created by the European Central Bank in order to address the risk of euro zone splits.

The central bank held an emergency meeting to address higher borrowing costs for many European governments.

The Governing Council of the European Central Bank has pledged to act against the risks of fragmented economies since the gradual process of policy normalization began in December 2011.

The euro area economy has been left with lasting vulnerabilities due to the Pandemic.

The recent rise in bond yields are reflected in the comments. After a regular policy meeting last week, the ECB suggested a more aggressive policy tightening but failed to deliver any new measures to support highly indebted nations

Money managers were nervous about the increase in bond yields.

Italy's 10-year bond yield crossed the 4% mark earlier this week, with one economist saying these levels could eventually turn into a problem.

The European Central Bank said on Wednesday that it will ask its team to accelerate the completion of the design of a new anti-fragmentation instrument in order to address these concerns.

The European Central Bank's commitment to the euro is its anti-fragmentation tool, according to a member of the board. There is no limit to this commitment. Our track record backs up this commitment.

Europe faced high borrowing costs in the wake of the debt crisis. There are still concerns about the region because it has one monetary policy for 19 different fiscal positions.

The 10-year Italian bond's yield fell further after the announcement by the European Central Bank.

The cost of borrowing for other euro zone governments dropped as well, with Greece's 10-year bond yield trading more than 7% lower.

Line chart with 377 data points.The chart has 1 X axis displaying Time. Range: 2022-06-14 20:01:00 to 2022-06-15 08:36:00.The chart has 1 Y axis displaying values. Range: 3.8 to 4.3.End of interactive chart.

The euro traded higher against the U.S. dollar after news broke of an emergency meeting.

The shares of Italian banks continued to trade higher on Thursday.

Mario Centeno, a member of the European Central Bank's governing council, said that faster monetary policy normalization is a risk. The rate hikes would be gradual according to the central bank.