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