Euro zone: Which risk premia are still present?

The very low level of interest rates and the high level of corporate profitability are likely to have eliminated default risk premia in the euro zone, both for equities and for corporate and government bonds. This leaves only two types of risk premia: Volatility risk premia, which are certainly present in the case of equities but not real estate , given the steady trend in real estate prices thanks to the low interest rates; Illiquidity risk premia, which are added to yields on real estate, infrastructure bonds and private equity. Yield-seeking investors in the euro zone can therefore no longer take default risk; they can take volatility risk in the case of equities , and of course il liquidity risk in the case of illiquid asset classes . If they refuse to expose themselves to il liquidity risk, then they are left with only European equities.