That is seeing the 10-year BTP-Bunds yields spread climb further to over 230 bps, its highest levels since May 2020.
This is a key spot to watch in the months ahead, especially as the ECB progresses with normalising policy. Lagarde failed to address the issue with fragmentation yesterday and that could blow up in her face and in turn, the euro.
When the ECB has kept policy more accommodative, it is managing to align both price and financial stability. However, as it seeks to address the former via tightening policy, the latter becomes a problem now.
And there are no easy solutions.
If the ECB continues to remain nonchalant about this, I would expect markets to continue to test them to their limits. The bond selloff here may just be the beginning and if the rout, especially in the peripheries, gets deeper then expect that to reverberate more strongly to regional equities and the euro in time.
