The ECB's decision to leave rates unchanged is actually threefold

　　The European Central Bank left its policy rate unchanged as expected, a decision linked to a new debt crisis in the region's fragile economies as well as a slowdown to stagnation and falling inflation.

　　ECB President Christine Lagarde told a news conference that the central bank kept its main policy rate unchanged and that the bank was not discussing any options for an early end to the reinvestment of its emergency anti-pandemic bond purchase program (PEPP). "Sometimes," she said, "not to act is to act. It makes sense to stay the course."

　　Central bank watchers believe that this is related to the debt stress of Italy (ITA). After the decision, Italy's sovereign bond spread over Germany (GER) narrowed to just under 200 basis points, which bought the country time. Earlier this month, the spread had risen to 210 basis points, driven by the prospect of further ECB rate hikes and an early end to PEPP reinvestments; At the time, market analysts expected this to mean that Italian debt would soon be downgraded to junk status.

　　"This is good news for Italian bondholders," said Gil Hilzer, an economist at Insight Investment.

　　"The sharp rise in sovereign yields, particularly in Italy, may make the ECB cautious," said David Powell, an economist at Bloomberg Economics.

　　Ludovic Subran, chief economist at Allianz, said he feared another sovereign debt crisis like the one in 2012. "We have seen an unheard of sell-off in Italian debt, which is not going to get better as this government chooses to maintain fiscal credibility," he said. The contagion of the Italian debt crisis is worrying."

　　Moshe Kumar, an economist at Jefferies Financial Group, said: "For Italy, the ECB statement and press conference are supportive. We are currently neutral on Italian government bonds. Italian and German sovereign bond spreads are likely to narrow further, however, the downward pressure will intensify going forward and we could take advantage of this rebound to short Italian bonds in December."