European Sovereign Bond Stress Surges as Franco-German Yield Spread Widens at Historic Pace

Deutsche Bank has flagged an unusual disconnect between escalating European sovereign debt stress and relatively resilient equities, warning that downward pressure on risk assets will mount unless bond tensions ease. Global government bonds sold off sharply, lifting yields to multiyear highs due to expanding deficit anxieties in France and inflation fears tied to Middle East conflicts. Over the past week, the Franco-German 10-year yield spread widened by 32 basis points—its largest weekly jump since 1990—reaching its widest level since 2012, while Italy's spread widened 23 basis points and the STOXX 600 dropped just 1.1%.