Eurozone government bonds staged a strong rally after a parade of European Central Bank policymakers signaled it was too early to scale back their emergency stimulus efforts.

Germany’s 10-year yield fell to minus 0.2 percent on Wednesday, reversing a sharp rise earlier this month, as markets reacted to an improving economic outlook for the eurozone.

The 10-year Bund yield, which serves as the benchmark for money block assets, peaked at minus 0.07% a week ago. The increase, which reflects lower prices, came as a growing group of investors bet that the ECB would respond to improving economic forecasts by slashing its € 80 billion in net bond purchases by month from next month.

Since then, however, several senior ECB officials have indicated that they consider it too early to start withdrawing monetary stimulus.

The latest is Fabio Panetta, member of the ECB’s executive board, who said in an interview with Nikkei published on Wednesday that “a premature withdrawal of political support would risk stifling the recovery before it becomes autonomous”.

“The conditions we see today do not justify reducing the pace of purchasing,” said Panetta, adding that any discussion of phasing out the Pandemic Emergency Purchasing Program (PEPP) from 1, 85 billion euros from the ECB was “still clearly premature”.

His comments, which came a day after similar comments by Greek and French central bank governors, pierced what had been a growing belief in the markets that the ECB would “cut back” on its bond purchases next month.

“The ECB is clearly not going to decline in June,” said Gareth Colesmith, head of global rates at Insight Investment. “I think they need to see a few more months of solid economic data first.”

This week’s rally also supported bonds issued by more indebted eurozone members like Italy. The additional yield, or spread, that Rome has to pay against German debt had started to widen in the previous sale – potentially setting off the alarm bells at the ECB’s headquarters in Frankfurt.

“It’s the spreads that will have been worrying for them,” Colesmith said. “Germany will have no problem obtaining financing from [10-year borrowing costs of] zero, but if Italian yields rise too quickly, this poses a threat to the recovery. ”

The most significant crackdown on calls by some Tory “hawks” on the council for a slowdown in bond buying came on Friday when ECB President Christine Lagarde said it was “far too early and that ‘ it was in fact pointless to discuss long-term issues ”.

After twice expanding the size of the emergency bond purchase program last year, the ECB has less than half of the € 1.85 billion left to spend under the PEPP. It plans to maintain net purchases at least until March 2022 and only stop once the pandemic crisis is over.

Recent business and consumer surveys indicate that the eurozone economy is on course for a strong rebound in the second quarter, after falling into a double-dip recession earlier in the year, and that the ECB should raise its growth and inflation forecasts in June.

However, several ECB board members told the Financial Times this week that there was still too much uncertainty to decide on a timetable for liquidating bond purchases under the PEPP, calling for this discussion to be postponed. to September, even December.

“There shouldn’t even be a debate about slowing the pace of buying,” said Richard Barwell, head of macro research at BNP Paribas Asset Management. “Panetta couldn’t have been clearer – if you’re serious about achieving your inflation mandate, you don’t have to talk about reduction.”

Compared to other central banks planning their exit from pandemic-boosted stimulus packages – such as the Federal Reserve and the Bank of England – the ECB continues to face long-term inflation expectations well below of its target of almost 2%.

“They’ve missed their inflation target for so long that markets are more likely to view them as a premature downsizing error,” said Jacqui Douglas, chief European macro-strategy strategist at TD Securities.