Swiss-based investment bank UBS highlights the convergence of spreads between state bonds in the Eurozone, calling it “historic” in a report.
UBS notes the European spreads are at their lowest level since 2008, with the disparity between the lowest and highest state bonds standing at 60 base points.
The investment bank also refers to the impressive improvement of Greece, underlining that the country’s debt is among the most “dynamic” in the common currency bloc, posting a 13-percentile drop annually over the past five years, making it among the highest performing in Europe.
The bank assesses that the Greek debt is expected to continue its positive trend, projecting a 5-point GDP drop annually.
UBS notes that this convergence is due to an improvement of fiscal figures in the EU member states on the periphery (Greece, Spain, Portugal), on the one hand, and the deterioration of the debt dynamic in Germany and France. As the bank explains, this leads to 2008-level spreads, adding that this picture could reflect a real convergence of debt risk instead of an erroneous valuation.
The Swiss bank mentions that European yields had receded to 10 points between 2001 and 2008. In contrast, at the height of the debt crisis in 2012, the spreads had surged to over 3,500 base points with the German bonds at 1.8%, compared to Greece’s 37.1%
UBS underlines that cross-sector asset investments entail market, credit, and currency exchange risks, which might intensify in times of increased volatility and restricted liquidity.
