European Central Bank President Mario Draghi sent euro governments into a tither Wednesday with his announcement that there would not be an earlier-than-expected end to its bond-buying plans. Instead, he upgraded short-term inflation forecasts telling the ECB's monthly press conference that “markets must get used to periods of higher volatility.”
His statement sent benchmark U.S. 10-year Treasury note yields to a two-day increase, adding 10 basis points to 2.36 percent, the biggest in four months and leaving German securities with their worst two-day slump in the history of the euro era.
“The ECB doesn’t seem too concerned with recent volatility, and so that’s a green light for that volatility to continue without the ECB reacting,” said Owen Callan, a fixed-income strategist at Cantor Fitzgerald LP in Dublin.
No Exit Strategy
According to Draghi, the ECB's Governing Council is not even considering an "exit strategy" for its 60 billion euro ($67 billion)-a-month program, citing a "long way to go" before the central bank reaches its inflation target of close to 2 percent.
The ECB had originally projected an annual inflation of 0.3 percent in the euro area for 2015, 1.5 percent in 2016 and 1.8 percent in 2017. After the release of the March 2015 figures, these numbers have been revised for 2015 but remain the same for 2016 and 2017.
Draghi was not surprised by the inflation correction which was in step with the ECB's own forecasts. Speaking at the press conference after announcing the bank rate’s decision, Draghi said, "We have to look through the medium term, until the objectives have been reached in a sustained fashion."