Italy bond yields jump as investors brace for budget clash
Italian government debt was under selling pressure Monday, pushing the yield on 10-year paper to its highest intraday level since May, after European Union officials criticized the governmentâs fiscal plans, reinforcing expectations for a budget clash with Brussels.
Investors are also weighing the prospect of near-term downgrades to Italyâs credit rating.
With Italyâs key government figures ââover the weekend making it clear that they are in no mood to compromise with the Commission over their reckless fiscal plans, BTPs are again underperforming,ââ said Chris Scicluna, economist at Daiwa, in a note.See Also
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A sharp rise in Italian government bond yields tied to budget worries and the rise in U.S. Treasury yields dominated fixed-income trading last week. U.S. trading in Treasurys is closed Monday for the Columbus Day holiday. Equity markets are open.
See: Why Monday may offer a respite for stock-market investors after a bruising bond rout
The yield on the 10-year Italian government bond TMBMKIT-10Y, +5.48% rose 17.3 basis points, according to FactSet, to 3.581% after trading as high as 3.628%. Yields and bond prices move in opposite directions.
The yield premium demanded by investors to hold Italian bonds over the 10-year German bund TMBMKDE-10Y, -5.70% widened by 25 basis points to nearly 3.11 percentage points, the widest spread since May 29.
Italy last week unveiled a target for its 2019 budget deficit of 2.4% of gross domestic product, three times as large as the previous governmentâs target. The all-important spreads between Italian and German bond yields widened temporarily beyond 3 percentage points then came back in after longer-term projections showed the deficit target falling in 2020 and 2021, though economists argued that accompanying economic projections were overly optimistic.
In a letter Friday to Economy Minister Giovanni Tria, the European Commission said Italyâs budget targets are a âsource of serious concern,â news reports said.
Italyâs government over the weekend said it wouldnât retreat from its budget plans, news reports said. The prospect of a clash has triggered a selloff in Italian bonds and stirred fears of credit downgrades.
Italyâs de puty prime minister, Matteo Salvini, who heads the far-right League party, on Monday said he hopes credit-ratings firms show no prejudice toward Italy when they review their ratings, Reuters reported, while also reiterating that Rome wouldnât exit the euro.
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +1.37% rose 17.1 basis points last week, its sharpest weekly advance since February, taking it toward 3.23%, its highest level since 2011 and unsettling equity investors.
Read: Sure, yields are risingâ"but itâs the bond marketâs velocity that threatens to throttle stocks
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