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What is the outlook for eurozone sovereign spreads?

 

The essential

The Eurozone sovereign spreads have fluctuated depending on electoral and political events over the last six months. However, the prospect of a phase-out of the ECB’s quantitative easing programme (and hence its Public Sector Purchase Programme, the PSPP) will also play a crucial role.

It is hard to quantify by how much exactly sovereign spreads dropped thanks to the PSPP but it is clear that the massive ECB asset purchases avoided a significant rise of spreads during several stress episodes (fall of equity markets early-2016, shock linked to the Brexit referendum). For several countries, the current sovereign spread is clearly below fair values. As a consequence, it is very likely that we will enter an era of higher Eurozone sovereign spreads. The recent upward trend of sovereign spreads at a time of good equity performances tend to prove it.

Flag-UK

May 2017

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Mai 2017

 

The Article

L'Article

DRUT Bastien , Fixed Income and FX Strategy
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