European sovereign bonds sound the alarm, yet stock markets remain resilient! The France-Germany spread posts its largest weekly widening in more than 30 years. Deutsche Bank warns the divergence may be hard to sustain.

Zhito Finance APP has learned that European sovereign bond markets came under notable pressure last week, but European equity markets and the corporate credit market reacted only mildly, creating a rare divergence across asset classes. Henry Allen, a macro strategist at Deutsche Bank, pointed out that compared with how European markets performed during past episodes of risk contagion, the current sharp widening of sovereign bond spreads has not been accompanied by a major selloff in risk assets, a situation he called "very unusual." Deutsche Bank believes this divergence is difficult to sustain over the long term, and if the recent financial stress does not ease quickly, risk assets such as European equities could face increasing downward pressure.