Eurozone Bond Spreads Ease as Traders Cut ECB Rate-Hike Bets

The market is effectively treating wider peripheral spreads as a de facto tightening of financial conditions, one the ECB cannot fully offset with rate hikes aimed at core inflation. That shifts the burden of adjustment onto fiscal policy in the bloc's more indebted members, at a time when they have limited room. The open question is whether this spread-driven constraint on ECB tightening becomes a durable feature of the policy reaction function, or fades once peripheral borrowing costs stabilize.