Ironically, the first major central bank likely to be tested in 2022 is the most dovish: The European Central Bank. Since the Dec. 16 unveiling of its post-pandemic stimulus policy review, there has been a gradual but persistent widening of Italian government bond yields, showing that weaning markets off unlimited quantitative easing is no simple task.
As Italian yields are the key litmus test for how the euro zone is holding together, it’s a matter of concern if there isn’t some stabilization. Better to get ahead of a potential crisis than be forced to react to one.
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