Tuesday 21 August 2018

Fears of eurosceptic finance minister weigh on Italy bonds

Traders work on the floor of the New York Stock Exchange shortly after the opening bell
Traders work on the floor of the New York Stock Exchange shortly after the opening bell

Balazs Koranyi and Francesco Canepa

Italian government bond yields slipped from multi-month highs yesterday after six days of heavy selling, though reports that the incoming coalition could pick a eurosceptic figure as economy minister tempered the recovery in bonds.

The likelihood of a government comprised of the anti-establishment 5-Star Movement and the far-right League has pushed Italian 10-year yields up nearly 70 basis points since the start of the month.

Analysts said the price falls of recent days might render the debt attractive again for some, despite fears of a government spending binge in one of the most indebted euro zone states. As some buying crept in, 10-year yields eased more than 4 basis points at one stage to a session low of 2.28pc, coming off 14-month highs of 2.418pc.

Those falls were partly reversed, however, after the Italian news agency Ansa reported that eurosceptic economist Paolo Savona was in the running to become economy minister in a new government.

The 10-year yield briefly rose almost four bps after the report.

Mr Savona has been quoted in the national press in recent years as saying that the euro is a "noose around Italy's neck". While 5-Star and the League have been careful to tone down their anti-euro rhetoric, Mr Savona's appointment, if confirmed, may bring back currency traders' concerns.

"Savona's background as a vocal critic of Europe's construction make him the least market-friendly candidate," Mizuho strategists told clients.

The closely-watched Italy/Germany 10-year bond yield spread - a reflection of the premium investors demand to hold Italian risk compared with "safe" German bonds - to 180 bps. (Reuters)

Irish Independent

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