This paper analyses the role of …scal factors in the joint dynamics of eight euro-area government-bond yield curves within an arbitrage-free a¢ ne term structure model of potentially defaultable sovereign bonds. Thanks to a new, computationally-e¢ cient algorithm, we are able to estimate both the historical and risk-neutral dynamics of the pricing factors in a single step by likelihood maximization. We …nd con…rmation that the perceived deterioration in public …nances was the major driver of the widening in bond spreads towards Germany after 2008, albeit through both heightened required compensations for default risk and increases in associated risk premia.