Following a substantial retreat in euro breakup fears over the summer, amid EU solidarity on post-pandemic joint debt sales and fiscal transfers, Italy's 10-year government borrowing premium over Germany's has narrowed to its lowest level since before the COVID-19 shock unfolded in February. Aiding the demand for Italian bonds - Europe's biggest government bond market by size - has been investors' recent obsession with disappearing long-term real, or inflation-adjusted, yields in all other major bond markets. Even though Italy's 10-year real yield has sunk to just 0.3%, it remains above pre-COVID levels near zero, 30 basis points above Japan and more than 100 basis points above equivalent French, U.S. and UK equivalents.
Chart by Ritvik Carvalho and commentary by Mike Dolan.
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