Why there is no reason to fear a widening of peripheral euro-zone countries’ yield spreads

Peripheral euro-zone countries’ yield spreads are unlikely to widen, for several reasons: The ECB and the excess global savings ( ex ante ) are likely to keep risk-free long-term interest rates low, which makes it easier to keep the peripheral countries fiscally solvent; Investors continue to switch to higher-yielding government bonds; euro-zone banks are taking advantage of the negative interest-rate financing (TLTRO) to buy government bonds and receive the corresponding carry, which is quite large; The ECB’s reaction during the crisis, its likely reaction after the crisis and the European recovery plan will discourage speculation against peripheral countries, thanks to increased solidarity between euro-zone countries .