Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Athens on Wednesday and Thursday, 25-26 October 2023

1. Review of financial, economic and monetary developments and policy options

Financial market developments

Ms Schnabel started her presentation by noting that the market’s immediate response to the dramatic geopolitical upheaval in the Middle East, following the terrorist attacks on Israel on 7 October 2023, had so far been contained. Bolstered by continued robust economic growth in the United States, the surge in global long-term bond yields that started over the summer had continued in recent weeks, as investors were increasingly internalising the prospect of interest rates staying high for longer. At the same time, expectations for the future path of short-term interest rates had remained broadly unchanged.

Long-term sovereign bond yields had risen globally. Yields on both sides of the Atlantic were now approaching levels seen from 2005 to 2007 during the last monetary policy tightening cycle. The differential between US and euro area ten-year interest rates had fallen back to the levels observed when the ECB started increasing its key policy rates in July 2022. On aggregate, the recent rise in sovereign bond yields in the euro area had been predominantly driven by an increase in the risk-free rates. However, the rise in yields had not been uniform across euro area countries. Idiosyncratic factors had likely contributed to these developments, and there had been no signs of market fragmentation.