 A credible spread backstop would offer the ECB a way to hike rates and keep market fragmentation risks at bay  From an investor’s perspective, such a programme would favour a bullish call on EUR credit, especially high yield  For sovereign spreads we think no explicit spread cap is likely, but ECB support would likely favour front end BTPs New playbook for a new era In the Eurozone, until recently at least, there has been no real tension to using asset purchases to support market liquidity and as a monetary policy tool. Spread widening across the Eurozone once more highlights the difficulty in setting a single monetary policy across 19 different countries. The ECB Governing Council now faces a delicate balancing act between hiking rates and keeping market fragmentation risks at bay.

Existing programmes such as PEPP reinvestments are useful but inadequate, hence the need for a new contingent spread backstop.