PARIS: The eurozone bond market is gradually recovering from the disruption caused by the debt crisis, analysts say, with the gap in borrowing costs between fragile countries and Germany at two-year lows.
“The bond market is benefiting from both the staunch support of the ECB for one year and better-than-expected economic indicators for the past couple of weeks,” said Rene Defossez, a bond analyst at French investment bank Natixis. “This cocktail is reassuring investors,” he added.
A normalisation of the bond markets began in July 2012 when European Central Bank chief Mario Draghi pledged to do “whatever it takes” to protect the euro and later unveiled a facility to provide massive support to countries implementing stabilisation programmes.
And the past few months have seen a series of more reassuring economic indicators, culminating with data showing the eurozone exited its record 18-month recession in the second quarter with 0.3-percent growth.
Germany managed 0.7-percent growth and France 0.5 percent. And while Spain and Italy still contracted, the rate had slowed.
At the height of the debt crisis, the difference — or spread —between the low borrowing costs enjoyed by powerhouse economy Germany and the ballooning rates endured by crisis-wracked Italy and Spain soared to levels seen as unsustainable.
In times of economic crisis, investors demand higher returns to lend to countries seen as less stable, as they fear they may not be paid back. This pushed up the borrowing costs for the likes of Italy and Spain.