ECB's Rehn says soaring yields may curb inflation impact of expensive energy - Reuters

European Central Bank Governing Council member Olli Rehn has suggested that rising bond yields could work in the central bank's favour by dampening the inflationary pressure created by costly energy. Higher borrowing costs tend to slow demand across the economy, which can offset some of the price pressure that expensive energy feeds into the broader inflation picture.

For markets, the remark is a reminder that the ECB views financial conditions as part of its inflation-fighting toolkit. If yields rise enough on their own, that tightening may do part of the work rate-setters would otherwise need to accomplish through further policy moves. That distinction matters for how investors read upcoming ECB commentary and economic data.

What to watch: whether government bond yields continue climbing, and whether that shift shows up in inflation readings and growth indicators. Also relevant is how other ECB officials frame the same trade-off, since the Governing Council does not speak with one voice. For now, Rehn's comment signals that the inflation outlook depends on both energy prices and the cost of credit.