In earlier times of fiscal turmoil like the present one, the bonds of countries such as Greece, Italy, Spain and Portugal have been the focus of market attacks. Now, however, they are the big winners and a safe haven in the storm.

The yield spread of their 10-year bonds with the German 10-year bunds has fallen below 1%, against around 6-7% a decade ago. The Greek spread is currently at 75 basis points – levels seen before the debt crisis – the Italian is at 95 bps, the Spanish at 62 bps and the Portuguese at 52 bps. At the same time, the yield on the Greek 10-year bond, which stands at 3.25%, is almost equal to that of the French 10-year bond at 3.22%.

According to analysts, the convergence of the periphery’s borrowing costs with the core countries, especially Germany, is a trend that will continue, thanks to factors such as fiscal discipline and strong growth.

As Jens Peter Sorensen, chief analyst at Danske Bank, notes to Kathimerini, “the peripheral countries are the ‘stable countries’ in the euro area, both from a fiscal point of view (Greece and Portugal being the strongest) but also from the political viewpoint, then there is much less political uncertainty compared to core and semi-core countries such as Germany, Netherlands, France and Austria.”

“Furthermore, if we look at the ratings, then the periphery is still being upgraded, while we had a downgrade of Austria last week. So, in my view, then the performance can continue as there is positive carry being long the periphery versus core-EU, fiscal situation is better in the periphery than in core and semi-core EU, there is less political uncertainty in the periphery than in core-EU, and fiscal expansion and monetary easing benefits spread products such as the periphery, covered bonds, credit bonds vs. core-EU,” says the Danske Bank analyst.

Barclays’ rates strategist Max Kitson agrees: “On our side, we took a constructive bias on peripheral spreads in our 2025 outlook published at the end of last year, and we still stick to this bias.”

He cites five reasons for the spread to keep shrinking: “For us, a few different factors tilt risk to a further grind tighter in peripheral spreads (i.e. peripheral yields continuing to compress versus German yields):

Rating upcycles across the periphery: all of the peripheral sovereigns (Italy, Spain, Portugal, Greece) are seeing their ratings trend higher, reflecting a combination of improving budgetary positions and relative growth outperformance (the latter more so for Spain, Portugal and Greece).
Deficit convergence between peripheral countries and Germany, as Germany ramps up borrowing (our economists expect Italy and Germany to both run deficits of 3.5% of GDP next year, contrasting with relatively low German budget deficits historically)
A lack of major political noise in the periphery: we do not see major political tail risks in the periphery (unlike in France where far-right/far-left populism is a significant medium-term concern)
A ‘carry-friendly’ macro environment, with volatility having declined in the context of recent de-escalations on tariffs
Slowing issuance: we are moving into the summer period where euro area government bond supply tends to slow significantly, with relatively little by way of syndicated EGB supply anticipated between now and late-August.”