The rise in sovereign credit spreads in the euro-zone since the spring has partly reflected concerns about the implications of the slowdown in China and US monetary policy, rather than just specific worries about the future of the region. While we expect the concerns about events elsewhere to subside as it becomes clear that China’s economy is not falling off a cliff and as US interest rates finally begin to rise, we think spreads in the “peripheral” euro-zone countries may increase further.
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