This paper is a first attempt at evaluating the determinants of the interest rate differentials on government bonds between high yielders, namely Italy, Spain and Sweden, and Germany. In particular we concentrate on daily frequencies, where the relevance of economic fundamentals is rather limited, and address the question of the relative importance of local and global factors in the determination of such spread. We identify and measure three components of total yield differentials: one due to expectations of exchange rate depreciation--which we call the exchange rate factor--another which reflects the market assessment of default risk and a last one due to the different taxation treatment of long-term yields.