“Negative yields cannot be a long-term state of normal” – ECB’s Nowotny

FXStreet (Mumbai) - In an interview with Bloomberg on Wednesday, European Central Bank (ECB) Governing Council member Ewald Nowotny said that borrowing costs of a number of euro area sovereigns will reverse back to the positive territory over the course of the QE program.

Key Quotes:

“If we enter a more normal phase of inflation expectations, that will also be reflected in yields,”

“I don’t think one can assume that we will have a very long phase of negative yields if this program is successful.”

“There is an inherent risk of future losses if we buy at negative yields, so basically, one would like to avoid those future losses by buying longer maturities,”

“Engaging in foreseeable losses is something that may come with a reputational risk for central banks.”

“One has to say clearly, negative yields are not avoidable in the current situation but they cannot be a long-term state of normal - it’s a distortion,”

“If we should see that for a longer period of time we still have a large part of the market at negative yield, that’s something we have to think about.”