Most ECB policymakers see no need for spread-fighting tool yet

FRANKFURT (Reuters) - A large majority of European Central Bank policymakers see no need for now to announce new bond purchases to rein in spreads between bond yields as borrowing costs remain low, sources told Reuters.

The sources said euro zone rate-setters meeting in Amsterdam on Thursday only briefly discussed the topic of 'fragmentation', or diverging financing costs between different countries, and there was no debate about announcing a new tool.

In fact, one source said there has been no progress on this topic since a seminar in April and work was only expected to resume in earnest in September.

President Christine Lagarde said after the meeting the ECB would deploy new instruments if needed to avoid such fragmentation but provided no detail, sending bond spreads widening.

The ECB effectively pre-announced a 25-basis-points increase to interest rates - the first hike in more than a decade - in July and pencilled in a bigger move in September.

The sources said some policymakers proposed having a larger, 50-basis-point increase already at the July meeting.

An ECB spokesman declined to comment.

The prospect of higher rates has driven up yields on government bonds, particularly for more indebted countries such as Italy.

The spread between Italian and German bonds with a 10-year maturity was at its widest since the spring of 2020 at 225 basis points.

(Reporting By Francesco Canepa; Editing by Balazs Koranyi)