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The European Central Bank will activate the bond-purchasing firepower it’s earmarked as a first line of defense in a crisis on Friday, President Christine Lagarde said.

The decision to “apply flexibility” to how reinvestments from the ECB’s pandemic emergency bond-buying portfolio are allocated is aimed at curbing unwarranted turmoil on government debt markets as interest rates are lifted from record lows.

Net buying under a separate asset-purchase program is also set to end on Friday, potentially exposing some of the euro zone’s more-indebted nations to speculative attacks by investors.

“We have decided to apply this flexibility in reinvesting redemptions coming due in the PEPP portfolio as of 1 July,” Lagarde said Tuesday in a speech in Sintra, Portugal.

The availability of pandemic reinvestments has been touted as an initial crisis-fighting tool since December last year, though the ECB didn’t choose to resort to that option until an emergency meeting on June 15 that followed a surge in Italian yields.

Italian bonds trimmed declines Tuesday, narrowing the 10-year yield premium over its German counterpart -- a key gauge of risk in the region -- by six basis points to 191 basis points, the lowest since Thursday.

The ECB is also working on a new instrument to tackle the same issue -- known as fragmentation -- and is expected to announce something in the coming weeks. 

Lagarde said the tool will allow rates to rise “as far as necessary,” complementing efforts to stabilize inflation at the 2% target -- a quarter of the current level.

“We will ensure that the orderly transmission of our policy stance throughout the euro area is preserved,” Lagarde said. “We will address every obstacle that may pose a threat to our price-stability mandate.”

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