Euro Area Sovereign Bond Yields during the Covid-19 Pandemic: What Do They Tell Us?

This commentary examines the slope of the sovereign bond yield curve before and during the Covid-19 pandemic. The yield curve as a sentiment indicator on the future growth prospects of the euro area is upward sloping, indicating that borrowing money long-term is more expensive than short-term borrowing. Sovereign bond yields have been rising since January 2021, signalling that investors expect economic expansion as vaccination gets underway in Europe. The ten-to-two-year term spread for euro area benchmark bonds is positive, showing that a recession in the euro area is unlikely to occur in the near future.