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• Financing conditions improve in euro area peripheral countries and in emerging economies
• ƒU.S. economy bounces back after a difficult first quarter
• ƒChina’s first-quarter GDP growth the slowest in two years

Sovereign debt markets in the peripheral countries of the euro area have rallied since the fourth quarter of 2013, with yields on 10-year government bonds falling to pre-crisis levels and in some cases even below. Yields on Spanish 10-year bonds, for example, fell below 3.1 per cent, their lowest level since 2005. In part, the euro area peripheral countries have benefited from the flight to relative quality capital flows of emerging economies. In addition, the improvements in economic prospects in peripheral countries have become a more relevant factor. Portugal, for instance, has decided to exit its rescue programme without a line of credit from the European Union (EU), as did Ireland earlier this year, demonstrating the extent of the improvements in their fiscal positions. Other factors are also at play, particularly the expectation that the European Central Bank (ECB) will embark on a new quantitative easing (QE) programme, consisting of large-scale asset purchases in the near future. Overall, lower borrowing costs may lead to a virtuous cycle, by strengthening Governments’ finances and helping economic growth.