Bottom Line: France’s 10-year government bond spread to Germany widened past the 2012 highs last week prompting market speculation that the ECB could soon deploy its Transmission Protection Instrument (TPI). However, TPI is unlikely to be implemented, firstly because the ECB has firmly dismissed talk of activating it and secondly because France does not qualify for TPI. Back in 2022 when Eurozone yields rose and spreads widened rapidly the ECB adopted - but never used - TPI. Faced with the need to tighten monetary policy given rising inflation, the ECB accompanied its first rate hike in ten years in July 2022 with the introduction of the TPI, against a backdrop of fears about the stability of the monetary union.
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