The uncertainty over Greece has recently added new volatility to peripheral bond spreads. 10-year yield spreads to Germany widened around 40bp over the past weeks before coming down again in the past days as fears over a Greek exit eased again. It’s not the first time we have seen this kind of volatility in peripheral spreads or that EU and Greece are in a stand-off over a perceived lack of Greek commitment to reform. While a deal in the short term is unlikely a solution will ultimately be found. But the Greek government needs to show that it is fighting until the very end. Until then volatility will probably be high. “In the medium term we continue to like peripheral bonds as ECB QE, very low core yields and improving fundamentals in periphery countries support further spread narrowing.” – said Danske Bank
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