There is a long term spread compression in terms of EU core (Germany) vs periphery (Spain) which reached a milestone recently – the Spanish 10Y went below 4% and the gap is around a two-year low. As the chart shows the premium had been significantly lower so there could be more room for the riskier asset to appreciate, especially if we take some recovery into the account. I wouldn’t say it’s a good opportunity but clearly this is the European trend nowadays. A risk however if there won’t be an other LTRO since EU banks are swimming in these sovereign debt but it is a highly unlikely scenario.



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