Key points
- ECB policy drives Bund yields.
- Peripheral spreads (Italy, Spain) reflect credit risk.
- 2010s sovereign debt crisis reshaped market.
Example
When Italy 10Y BTP yields 4.5% vs Germany Bund yields 2.8%, the 170 bps spread reflects sovereign risk; political shocks can widen it 50 bps overnight.
In history
Italian 10-year spreads over German Bunds rose above 500 bps in late 2011 and 2012. After ECB President Mario Draghi pledged in July 2012 to do "whatever it takes" to preserve the euro, they fell sharply, and stayed mostly below 200 bps in 2023.
Related terms