May 19, 2020 / 7:16 AM / 9 days ago

Goldman Sachs says EU recovery fund proposal 'short-circuits' euro zone bond yields

German Chancellor Angela Merkel holds a joint video news conference with French President Emmanuel Macron in Berlin, Germany, May 18, 2020. Kay Nietfeld/Pool via REUTERS

LONDON (Reuters) - The French and German proposed 500 billion euro ($547 billion) recovery fund will “short-circuit” euro zone government bond yields for now and spark a further fall in Italian and Spanish borrowing costs, Goldman Sachs said on Tuesday.

The U.S. bank said in a research note that the gap between German and Italian 10-year government bond yields should narrow to below 180 basis points DE10IT10=RR, levels that were last traded in March. The current spread is at 205 bps.

The difference between German and Spanish yields should drop to sub 90 basis points DE10ES10=RR, Goldman Sachs said, from current levels of 121 bps.

Reporting by Tommy Reggiori Wilkes; Editing by Dhara Ranasinghe

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