The paper analyses the spread between the yields of ten-year government bonds of the main euro-area countries and that of the German ten-year government bond. A value of the differential is estimated which is consistent with the underlying macroeconomic figures of each country (fair value).
The results show that the levels of the spread observed in the last ten years have often been higher than a value justified by the macroeconomic determinants would be. As expected, the ratio of public debt to GDP and the expected growth have an opposite effect on the dynamics of fair value. Furthermore, in the last two years, expected inflation has taken on an important role, with a negative contribution to fair value during 2020 and part of 2021 and a positive one since the fourth quarter of 2021, as it has grown significantly.
