Italy's bond market under renewed pressure
Italy's government bonds faced renewed selling pressure on Friday, as risk aversion in world markets and unease about Rome's spending plans set yields on short-dated debt up for their biggest weekly rise since 2012.
In contrast, safe-haven German bond yields fell sharply, clawing back some ground after two days of selling on expectations that next week's European Central Bank meeting will see a "live" debate on the ending of asset purchases this year.
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Worries about a global trade war before a meeting of leaders from the world's richest economies and central bank meetings next week in the United States and Europe fuelled a sense of risk aversion across world markets.
Italy bore the brunt of the risk-off sentiment in the euro zone, with investors remaining wary of holding the country's debt given uncertainty about its new government's policy agenda.
"What we see when we talk to investors is that they continue to sell into any recovery in Italian bonds," said DZ Bank rates strategist Daniel Lenz.
"There was also some news out that 58pc of Italians back the country's new government, which means that there's likely to be little change in its policies."
Italian two-year bond yields jumped 31 basis points to a 1-1/2 week high at around 1.82pc. They have risen almost 70 bps this week and are set for their biggest weekly rise since 2012.
Italy's 10-year bond yield climbed 5 bps to 3.05pc, while its gap over German Bund yields was at its widest in more than a week at around 263 basis points.
Italian yields have risen for six straight weeks - their longest run of weekly rises since the fourth quarter of 2016 when the election of Donald Trump as US President took world markets by surprise.
"We have seen a broad reassessment of the outlook in Italy and that is just beginning," said Sergio Capaldi, fixed income strategist at Intesa SanPaolo
"We've seen a government plan that is very ambitious and very problematic in terms of fiscal sustainability."
Outside Italy and Portugal, bond yields in the euro area were broadly lower.
Germany's benchmark 10-year bond yield fell 5 bps to 0.44pc, down from two-week highs hit on Thursday as investors fretted over next week's ECB meeting.