EUROPEAN Central Bank (ECB) chief Mario Draghi yesterday dismissed fears of a European bond bubble, insisting that talk of an early end to bond purchases was premature.
“So far we have not seen any evidence of a bubble,” he said after the ECB chose to hold interest rates at record lows. It has been suggested that the €60bn (£43bn) a month asset purchases that began in March has pushed up bond prices, creating a dangerous bubble.
Despite the interest on many government bonds turning negative, he said one important sign of a bubble – increased borrowing in financial markets – was absent.
“We are not seeing an increase in leverage in the banking sector,” Draghi said. Even if there was a bond bubble, he said monetary policy would not be correct the way to address the issue. Instead, he said macroprudential instruments should be used – these normally require banks to hold more capital.