These market dynamics must furthermore pose a serious threat to the transmission of monetary policy such that the preservation of price stability would be at risk. From a regulatory policy perspective, focusing on certain countries’ bond yields is obviously a balancing act. On the one hand, it is about ensuring a functioning transmission mechanism.
On the other hand, there is the danger of intervening in a market that is actually still functioning or of governments having less of an incentive to put their public finances on a sustainable path. For this reason, the TPI (Transmission Protection Instrument) contains safety precautions.