Market View

Will Italian Bond Shock the Market Again?

Italian Bond shocked the world in May.  Would it shock the world in next few months as its prepared itself for its budget that need EU’s approval.

Italian 10-year bond yields touched a two-month high of 3.1% 2018-08-03. The spread over those on their German peers was at 251 basis points.

Italy’s budget deficit fell to 2.3% of GDP during 2017, from 2.5% back in 2016, but its national debt pile of €2.4 trillion is still in excess of 130% of GDP, is the 2nd biggest in the euro area. This means Italy is legally bound to implement Brussels’ demands for action on the public finances.

Finance Minister Giovanni Tria said that he sees economic growth at 1.2 percent this year, before slowing to between 1% and 1.1% in 2019, according to an interview with newspaper Il Sole 24 Ore. He also reiterated the country’s commitment to the euro, which has been a point of concern for investors.

Fitch gives Italy a BBB rating, while Moody’s grades the nation Baa2 with a negative outlook, both of which are just two levels above sub-investment grade. While the two reviews, due Aug. 31 and Sept. 7, respectively, pre-date the government’s spending plan, they still provide downside risks to Italian bonds, according to Societe Generale.

Reference

Bloomberg, John Ainger, 2018-08-09, “Italian Bond Roller Coaster May Just be Approaching Its Zenith”

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