Given the strong rally in European equity markets over the last two weeks, below we provide an update of how credit markets in the region have acted during this spike in equity prices. In France, spreads of 10-year sovereign debt relative to Germany are down to 68 basis points (bps), which is the lowest level since September 2011. In Italy, we have also seen a decent decline in spreads. After getting close to the highs from last Fall, spreads have dropped by about 90 bps since July 24th to a level of 445 bps. Finally, in Spain, which has been under the most pressure of the three, spreads reached new highs on July 24th, topping out at 633 bps. Since then, they have also pulled back by a little more than France, but given that they peaked out at a higher level, we would have thought that the decline would have been even more.
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