MUFG Research discusses the latest developments in peripheral government bond markets and the related negative impact on EUR.
"The sharp slowdown in euro-zone growth and shift to looser fiscal policy has created some unease in peripheral government bond markets. The yield spread between Italian and Spanish government bonds over German bunds has widened sharply over the past month to around 2.6% and 1.3% respectively. The outright yields remain relatively low but it is an unwanted development which if it continues will undermine the ECB’s efforts to pass through monetary easing to support growth," MUFG notes.
"The last thing the euro-zone economy needs right now is another negative shock. The developments pose a downside risk for the euro which we will continue to monitor," MUFG adds.