The ECB may be tempted to dive into negative yielding corporate bonds, as the prices of these instruments have plummeted over the past two months. As a result, the ECB could make a significant impact on bond markets. However, before the central bank does this, it needs to see how the debt markets are faring. If they don’t, negative yields will continue to rise.
If the market is already showing signs of recovery, then the ECB may be more inclined to buy them. ECB officials are not likely to encourage banks to buy negative yielding bonds. The main advantage of buying government bonds is that the price is not sensitive to any market conditions, which means that the risk of falling asset values is low. Furthermore, a lower price for these assets is good for the economy.
The ECB is unlikely to encourage banks to buy these securities that offer negative yields. The central bank’s ability to influence asset prices is a primary factor driving the ECB’s decision to continue buying bonds. The euro has long been favored over its peers, which are tightening their monetary policies faster than the ECB. If it does, this could cause the euro to drop even more.