Draghi resilient in light of asset managers’ fears of volatility

European Central BankMario Draghi, president of the European Central Bank (ECB), said he plans to do “nothing” about greater volatility in the bond market when answering questions at a press conference yesterday (June 3).

When asked about the International Monetary Fund’s warning that asset managers and insurers could get into trouble in this environment of greater volatility and low rates, Draghi answered: “it’s quite clear that certain regulatory provisions make their task of diversifying their investments into higher yield and potentially more liquid investments more difficult.”

The volatility has been caused by investors continuing to sell off German bunds, a theme that started in April and has now brought the yields up to a level not seen since last October. As price moves inversely to yields, these products are now worth considerably less than they were at the start of the quantitative easing programme in March.

Draghi attempted to explain the shift in investor sentiment to German bunds. “Volatility by itself generated further volatility and further selling, and there is also poor market liquidity because of the absence of certain significant investors during this period of time.”

He also said that one lesson we should get used to is periods of higher volatility. At very low levels of interest rates, asset prices tend to show higher volatility, and in terms of the impact that this might have on the ECB’s monetary policy stance, the governing council was unanimous in its assessment that it should continue with the quantitative easing programme.

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