May 5, 2020 / 10:08 AM / 2 months ago

INSTANT VIEW-Bundesbank must stop buying govt bonds unless ECB proves need-court

LONDON, May 5 (Reuters) - Euro zone bond yields rose on Tuesday after a German consitutional court instructed the Bundesbank to stop participation in the ECB’s long-running PSPP stimulus scheme unless unless the ECB can prove those purchases are needed.

The ruling doesn’t apply to the ECB’s pandemic financing facility, the PEPP.

German 10-year yields rose 3 basis points, having earlier been up 1.12 bps while Italian yields rose 5 bps .

Here are some comments from market participants: EDWARD PARKER, CIO BROOKS MACDONALD “The court’s decision may bring into question the Bundesbank’s future participation in Europe-wide programmes. Given Germany’s economic size within both the EU and the Eurozone a failure for the Bundesbank to support future risk mutualisation would be a negative for European risk assets.

“This will put pressure not only on future quantitative easing participation but also deliver political pressure to not support fiscal burden sharing

“(The decision) highlights the lack of unity in Europe over the need or legal ability to provide support for weaker member states. HOLGER SCHMIEDLING, CHIEF ECONOMIST AT BERENBERG “This looks like a little big bang. Karlsruhe looks to heed to the complains partially. It attests to the European court of justice that it has exceeded its authority in parts.”

“If all of this leads the ECB to make its decisions and their proportionality more transparent, than the ECB can probably deal with it. But we have to examine all the details to understand the ramifications.

“In practice, this should not restrict the ECB too much. However, Karlsruhe has emphasized that there are limits to bond purchases. This could make it more difficult for the ECB to expand PEPP.”

Reporting by London markets team

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