▸ What is the risk premium?

The risk premium, also known as the yield spread, is the additional yield that one country pays over another in order to finance its debt in the sovereign debt market. The higher a country's risk, the higher it's risk premium and the higher the yield on its debt.
In other words, the risk premium is the additional return that investors request from a country in order to buy its sovereign debt over other countries. Risk premium may also be seen as a gauge of investor's confidence in the country's economy and ability to pay back its debt.
In Europe, the risk premium is the difference of a country's 10-year yield compared to Germany's, which is considered the benchmark because of its low risk.