Wednesday 5 October 2016 5:28 pm

Financial markets wobble after ECB taper talk

European markets continued to be rattled by the fallout from reports the European Central Bank (ECB) has started planning how to end its money printing programme today.

Borrowing costs across the Eurozone rose for the second day in a row as investors carried on digesting the possibility of a tightening of monetary policy from the Frankfurt-based ECB.

The yield on the benchmark German 10-year bond was on the verge of turning positive this afternoon, rising from minus 0.12 per cent on Monday to minus 0.01 per cent today. It was a similar story in France, Italy and Spain, where yields all rose by at least five basis points. 

Read more: ECB sees no risk of a banking crisis

The ECB's €80bn (£70bn) a month programme is due to end in March 2017 though it is widely expected the programme will be extended beyond this date. A Bloomberg report out earlier this week suggested the ECB was beginning to discuss how exactly it would bring this programme to an end, with officials mulling a gradual step down in purchases in €10bn increments.

Stock markets were also unsettled by the rumours, opening sharply down across the continent. Quantitative easing is seen as boosting the price of equities. Leading indexes in Germany and France recovered some ground throughout the day, however, to stand the day down around 0.3 per cent.

Craig Erlam, market analyst ad Oanda noted: "Even if the ECB is considering the path of tapering, that doesn’t mean it’s going to happen any time soon."

Meanwhile, Jim Reid at Deutsche Bank suggested a slowdown in monetary policy could the final motivation governments need to start looking at their own reforms. "The ECB actions might increase the risk of a recession," he said. "But this in turn might increase the chances of governments getting involved."