The Eurozone sovereign spreads have fluctuated depending on electoral and political events over the last six months. However, the prospect of a phase-out of the ECB’s quantitative easing programme (and hence its Public Sector Purchase Programme, the PSPP) will also play a crucial role.

It is hard to quantify by how much exactly sovereign spreads dropped thanks to the PSPP but it is clear that the massive ECB asset purchases avoided a significant rise of spreads during several stress episodes (fall of equity markets early-2016, shock linked to the Brexit referendum). For several countries, the current sovereign spread is clearly below fair values. As a consequence, it is very likely that we will enter an era of higher Eurozone sovereign spreads. The recent upward trend of sovereign spreads at a time of good equity performances tend to prove it.