European Sovereigns

10-year government bonds Central banks will not yet reduce support measures

Sovereign CDS spreads 5-year European sovereign CDS spreads (GER, NL and FR left, IT and SP right)

Sovereigns Europe - Market observation per 23 August 2021 -

European government bond yields are tightening

  • In Q2 ’21 and Q3 ‘21, Dutch, German, French, Italian and Spanish yields of government bonds tightened. German and Dutch 10-year yields reached their lowest levels in six months, at respectively -0.5% and -0.4%
  • Furthermore, trading has been tight, which is a sign of thin liquidity during summer months

The perception that central banks maintain an easy monetary policy supports the government bond market

  • European government bond yields decreased on the back of minutes from the Fed meeting announcing that the central bank will not yet slow down asset purchases
  • Despite inflation figures being above target, the Fed mentioned that the maximum employment goal has not been met
  • Investors are closely monitoring the Fed’s stimulus, which was put in place to weather the economic impact of the Covid crisis. The US central bank usually paves the path for other central banks such as the ECB
  • Earlier this year, investors anticipated on the possibility that the ECB could be encouraged to slowdown its emergency support package. New insights show that investors expect that in Q4 ’21, the ECB will announce plans to reduce the PEPP program

The costs of insuring exposure to debt issued by European governments stabilized further early Q3 ’21

  • CDS spreads of the Netherlands, Germany, Italy and Spain have steadily returned to pre-Covid levels whereas French CDS spreads are still slightly elevated compared to pre-Covid levels