, it would need to have in place the supporting financial infrastructure. of importance is the islamic money market. given the different needs of individual economies, the development of the structure of the islamic financial system needs to include, at the early stage, the development of the islamic capital market to provide an alternative source of financing, as well as to create broader and diverse islamic financial instruments for investors. complementing these three components is islamic insurance or takaful, that provides the necessary risk protection to its policy holders and to serve as an efficient mobiliser of long - term funds. the spectrum of participants and the diversity of instruments are among the key attributes in creating the enabling environment for a dynamic islamic financial system. this has been the approach adopted by malaysia at the very onset of our journey in the development of a comprehensive islamic financial system that is sustainable and progressive. in the initial stage during the early years of the development of the islamic financial system, the focus of attention was on the development of the islamic banking system and to expand the number of players and the volume of banking activity. this has increased significantly when the dual banking system was introduced. this was subsequently expanded to the specialised non - bank institutions, including the development financial institutions, and the savings banks and housing credit institutions, where islamic financial products and services are being offered. the other core components of the islamic financial system comprised the islamic money market, the islamic capital market and the takaful market. today, the islamic money market has become an integral part of the islamic financial system, with transactions of more than rm2 billion a day and a broad spectrum of instruments, among which included the government investment issues, bank negara negotiable notes, islamic accepted bills and the islamic private debt securities. new ancillary players such as money brokers have facilitated the development of this market. islamic finance as a sustainable intermediation process in this more challenging environment has been characterised by powerful forces of change that have brought significant implications on both the domestic and global financial systems, and marked by turbulent financial conditions. this requires the development of robust and resilient financial institutions. institutional capacity enhancement is a central strategy towards this objective. this requires having a high calibre workforce and management teams with the required expertise, leveraging on the technology, strengthening research and development, and instituting risk management systems. a structured consumer education programme has increased awareness of the islamic financial system and the advances it offers. the islamic capital market essentially comprises the equity market and

flight - to - liquidity flows observed at the onset of the covid - 19 crisis. specifically, against the backdrop of an improved economic outlook, investors increasingly switch from fixed income into more risky asset classes. • the second and third observation are that both us macro news ( the dark blue component ) and us policy ( the light blue component ) are driving factors behind the recent rise in yields. more specifically, these two factors turn positive in early january when the democrats gained control over the senate by the surprise win in georgia. as of that moment, the expectations surrounding the size of a potential fiscal package have significantly grown, which resulted via both the us macro and us policy component in upward pressure on euro area yields. chart 2 : decomposition daily changes in the 10 - year euro area ois rate 0, 3 ea policy us macro ea macro global risk us policy ea 10y ois 0, 2 0, 1 - 0, 1 dec - 20 jan - 21 feb - 21 mar - 21 source : dnb staff calculations. note : decomposition based on a two - country bvar. shock identification based on sign and magnitude restrictions. daily data. last observation 23 - 03 - 2021. • another channel via which an improved global economic outlook affects the euro area are oil prices and ultimately via expected inflation. charts 3 and 4 illustrate this by highlighting that the rise in oil prices was largely driven by demand side factors. the dominance of demand - side factors behind the rise of oil prices confirms that the improving economic outlook is an important driver. driven by the rising oil prices and the improving outlook, market - based measures of inflation expectations have surged as well, as depicted in chart 4. international spillovers and the ecb ’ s monetary policy — 3 chart 3 : decomposition daily changes in oil chart 4 : euro area ils and oil prices price supply demand 5y5y eur inflation swap rate oil price ( $, brent, rhs ) 1, 7 1, 5 1, 3 - 10 - 20 1, 1 - 30 - 40 0, 9 - 50 - 60 dec - 19 0, 7 mar - 20 jun - 20 sep - 20 dec - 20'19'20'21 source : dnb staff calculations. note : decomposition of the oil price into demand and supply factors based on a var model. identification based on sign restrictions. daily data. last observation : 23 - 032021. 4. the ecb ’ s policy response • not every rise in yields is inconsistent