The main objective is to downplay the rise in bond yields, but how?
It will be all about the language and communication by the ECB today as the central bank looks to push back against recent bond market developments, or at least keep things in-check and prevent any further rise in yields just in case.
PEPP data over the past two weeks have failed to do much convincing any a repeat of the threats we have heard in recent weeks may not be enough to do the trick.
So, what can we expect Lagarde & co. to do in the policy meeting today?
The ECB is likely to repeat and clarify further what "favourable financing conditions" are and to keep that as a tagline in trying to ensure the market that they will stay in a more dovish mode until the economy and inflation recovers in a sustained manner.
That is about as vague as they can be but essentially, it also leaves some flexibility to "surprise" the market if they do so choose to expand PEPP moving forward.
Policymakers could stress on the need to emphasise that they can expand PEPP if necessary and that is another step in trying to jawbone the rise in yields surely.
However, that's pretty much it for the most part. It is all about the wordplay and very little about any firm decision - at least this is what the market is expecting.
The ECB can take matters into their own hands to lay the debate to rest, either by taking up action and expanding PEPP today (that will be a rather strong message) or tweaking the language on the forward guidance in rates.
On the latter, this is the current communication by the ECB in that regard:
The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
As much as they may brush aside inflation developments, there is pressure on the central bank to keep fighting the data and market expectations under this guidance.
A stronger message may be to just put a timeline on this in saying that "interest rates are to remain at their present or lower levels until" 2023 or 2024 at the earliest perhaps.
Either way, they will have plenty of tinkering to do in order to keep the bond market in its calm state as it is now. Barring any disappointment, investors can breathe in more sigh of relief ahead of the weekend and that should keep the risk party going.
