Sep 28, 2023
Italy’s Debt Fears Send Yield Premium to 200 Basis Points
Bloomberg News
,
(Bloomberg) -- Investors are offloading Italian debt as nerves fray over the government’s spending plans, widening the nation’s risk premium to levels that have previously irked European Central Bank policy makers.
The extra yield investors demand to hold Italy’s 10-year bonds over equivalent German securities rose as much as six basis points Thursday, briefly breaching two percentage points for the first time since March.
The spread is set to post its biggest monthly jump since April last year, up 30 basis points, rekindling concerns over the risk that diverging government borrowing costs pose to the euro area.
The latest move comes after Prime Minister Giorgia Meloni’s government on Wednesday said it wouldn’t bring its budget deficit below the limit set by the European Union until 2026, risking a confrontation with Brussels.
Coupled with slowing growth and an end to bond purchases from the ECB, it’s adding to fears over Italy’s large government debt load.
Aman Bansal, a rates strategist at Citigroup Inc. in London, said he sees Italy’s yield premium heading to 210 basis points by the first quarter of 2024.
Still, ever since the ECB last year put in place a backstop, Italy’s widening bond spread is less of a concern. The so-called Transmission Protection Instrument, or TPI, helped narrow the spread from over 250 basis points last summer to almost 150 basis points in June.
--With assistance from Greg Ritchie.
(Updates prices in third paragraph.)
©2023 Bloomberg L.P.