But a silent and lasting decoupling of the short end of sovereign curves from our key policy rates warrants close monitoring by policymakers. For monetary policy, the prevailing financial conditions should remain consistent, as they have been so far, with the monetary policy stance intended by the Governing Council.
For financial stability, very depressed funding rates may incentivise sovereign bond holders to engage in more risk-taking, and banks to tilt their funding structures towards less stable wholesale funding. These risks have not materialised so far. Now, how likely are they to materialise? In other words, how persistent could current conditions prove?