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Tight by comparison
23/01/2026
Increasingly, shrinking Eurozone spreads say less about European virtues and more about anxieties in many of the world’s other bond markets.
In the early days of the euro, narrowing government‑bond yields were held up as proof that the single currency was working its magic. By 2007, Italy, Spain and France were able to borrow at rates not far off Germany’s. Then came the Eurozone crisis - and with it, a painful reminder that convergence in nominal interest rates need not always be a harbinger of future stability.
As our Chart of the Week shows, Italian, Spanish and even French yields have drifted back toward their pre‑crisis ranges in terms of their relative spreads to German Bunds. This reflects years of painful domestic reforms paired with European efforts to keep monetary transmission intact and fragmentation at bay. Mario Draghi’s 2012 “whatever it takes” moment still casts a long shadow.[1] Ireland and Greece, once synonymous with dysfunction in the eyes of government-bond investors, nowadays tend to trade at levels comparable to Austria and Belgium.
But this latest bout of convergence owes as much to turbulence elsewhere as to policy calm in Frankfurt, where the European Central Bank (ECB) is based. The most spectacular sovereign wobble of recent years after an ill-received 2022 mini-budget was in London, not Lisbon. The U.S. and Japan now wrestle with their own fiscal demons, putting Europe’s political drama in a more forgiving light.
France’s budget saga is a case in point. Political paralysis, a government forcing measures through and the prospect of multiple votes of no confidence might once have sent spreads soaring.[2] This time, markets barely flinched, and not only because the government looks likely to survive and avoid snap elections. More fundamentally, why panic about procedural tactics in the Assemblée Nationale when Japan’s 30‑year yield is lurching around and Washington is toying with buying Greenland?
Structural improvements have helped, too. Italy and Spain are the largest recipients of the EU’s post‑pandemic recovery funds, helping to stabilize government debts at the current levels. Both have lately tended to trade at tighter spreads than France. “Foreign buyers have already returned, too,” points out Ulrike Kastens, Senior Economist Europe. “According to central bank data, the share of French and Italian sovereign bonds held by foreigners has been recovering in recent years. These days, stability is a relative concept - and Europe is benefiting from everyone else’s drama.”
Eurozone sovereign spreads: then and now
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 01/20/2026
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