Southern Eurozone governments’ borrowing costs relative to Germany rose on Monday with investors rotating money into the safe-haven German bonds amid heightened fears of a double-dip economic recession in the common currency bloc.
“Risk spreads in the Eurozone are rising again due to the risk of a double-dip recession. 10y Italy risk premium over Germany jumps by seven basis points [bps], Spain’s risk premium by 4.5 bps, French risk premium by 1.3 bps,” macro analyst Holger Zschaepitz tweeted Monday.
The recent resurgence of coronavirus across the Eurozone has bolstered fears of bigger economic damage. Inflation has already dropped into negative territory. As such, markets expect the European Central Bank to deliver additional stimulus before the end of the year.
Widening of the periphery-German bond yield differential usually weighs over the common currency.
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