Peripheral European bond yields narrow as Merkel forms 'grand coalition' with SPD

Months of talks between the parties

Southern European bond yields have narrowed after Chancellor Angela Merkel finally reached a coalition agreement "in principle" with Martin Schulz's pro-European Social Democrat (SPD) Party.

The announcement comes after months of talks between the two parties, and signals an end to the longest period without a government since World War II, after Merkel failed to secure an overall majority in the September elections. Merkel, who will begin her fourth term as German Chancellor, has conceded the finance and foreign ministries roles to the SPD, who have previously called for a "United States of Europe". On the news, Italian, Spanish and Portuguese 10-year government bond yields were 5-7 basis points lower on the day, and spreads over benchmark German bunds tightened, accordi...