The market sometimes sends little signals that investors are losing faith. For example, the recent widening in the spread between bid and ask prices for Southern European government debt suggests the end of the era of easy gains.
On the surface, the periphery party is just taking a breather. Ten-year Spanish and Italian yields aren’t far from record lows of 2.55 per cent and 2.70 per cent, respectively, set earlier in June after the European Central Bank did everything short of quantitative easing to loosen policy. Very loose monetary policy could allow the yield gap between these bonds and those of Germany to continue to narrow.