Sovereign bond yields are an important reference point for assessing the transmission of our policy stance because they act as a benchmark for determining the financing conditions for firms and households. It is natural for sovereign yields to differ somewhat across euro area countries, owing to idiosyncratic factors, such as public debt-to-GDP ratios, budget deficits or long-run growth rates.
However, at times yields can, and do, rapidly diverge from economic fundamentals. Excessive divergence makes credit conditions inconsistent with the uniform transmission of monetary policy impulses and could cause financial instability. It is instead critical that financing conditions move broadly in sync across the euro area when we change our stance.