Investors who braved dire warnings about existential threats to the euro area have been richly rewarded. Over the last twelve months, euro area equity prices soared more than 23 percent. That leaves liquidity turbo-charged U.S. and Japanese markets far behind.
The monetary union’s bond market performance during the same interval is even more impressive, given the widespread forecasts of impending disasters on its southern periphery and a new round of financial distress. Here is what happened: Yield spreads with respect to the benchmark ten-year German bond were halved in the case of Italy and Greece, and more than halved for Spain and Portugal.
That is quite remarkable because the yield on the German benchmark bond declined over that period from 1.60 percent to 1.37 percent last Friday.