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10.22.2025

Convergence 2.0

Euro area sovereign spreads at the lowest levels since 2009

​Euro area sovereign spreads are now at their narrowest point since 2009. This is a notable shift that likely surprised investors, especially those who continue to view the bloc as divided between Germany and the rest.


In this note we:

1) Present a quantitative framework to identify the drivers of the move. According to our analysis, an improving fiscal and political framework has played a critical role in the tightening process; in addition to easier monetary policy conditions and improving risk sentiment.

2) Assess whether such convergence may have further momentum and under which circumstances. We expect the process to continue, although at a slower pace.

3) Discuss the reasons why we do not expect spreads to collapse to pre-2009 levels.

4) Provide a trade recommendation. In particular, we suggest continuing to overweight BTPs and SPGBs, while underweighting core and semi-core govies in an EGB portfolio, also taking into consideration the better entry levels and steeper curves of BTPs and SPGBs.

​​

CHIARA CREMONESI 
Senior Rates Strategist


MATTEO GALLONE
Junior Macroeconomist


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