Nagel Clarifies ECB Focus Amid French Bond Selloff

European Central Bank policymaker Joachim Nagel clarified the ECB's focus on inflation rather than specific bond spreads. This comes as French government bond yields hit their highest level since 2002, pressured by concerns over the country's finances and renewed inflation worries in the euro zone.

Nagel stated that the ECB's debt-buying tools are designed to safeguard price stability, not target specific sovereign bond spreads. He also mentioned that individual spread levels will not be commented on. The Bundesbank president pointed out that the ECB has several tools at its disposal, but none of them are specifically aimed at certain spread levels.

The spread between French and German government bond yields widened to 132.86 basis points, its highest level since the euro zone debt crisis in 2012. Macro strategist Reinout De Bock from UBS attributed this increase to inflation risk, term premia, political uncertainty, and fiscal uncertainty reinforcing one another.

The ECB has raised rates twice since June to stem a rise in inflation fueled by the war in Iran, which has curtailed the supply of oil and gas to the energy-importing euro zone.