Mario Draghi, President of the European Central Bank (ECB), presented an optimistic economic outlook to the European parliament yesterday.
He reiterated the prospect of inflation converging towards the ECB’s target of “close but below 2 percent” over the next three years, terminating a period of chronic deflation fears.
He argued that wage growth has accelerated of late thanks to the broad-based gains in employment and the “signs of labour shortages in some countries and sectors”.
The message took the bond market on the wrong foot; most participants had expected Draghi to outline how he would like to maintain the current level of monetary accommodation once the asset purchase programme (quantitative easing) has been terminated, which is most likely to happen at the end of the year.
As a result, the yield of the 10-year German government bond rose to 0.52 percent, up from 0.45 percent prior to the speech.
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