For some in the market, the “great risk normalisation” is the overarching theme for trades and strategies this year. And broadly speaking, I think this trend is intact, in particular when taking into account the following facts, while financial fragmentation in Europe still remains a fundamental concern: •  There has been a marked reduction of spreads and yields of stressed countries’ sovereign bonds.
For example the yields for ten year bonds have declined for Spain from a peak of 7.6% to currently 4.7% and from 6.6% to 4.3% for Italy. •  Bank debt funding conditions improved early this year in terms of lower financing costs and increasing breadth of issuance across banks.