Italy's Battered Bonds Draw Japanese Buyer on Yield Advantage

(Bloomberg) -- Italy’s budget turmoil has presented a buying opportunity for its sovereign bonds, according to a Japanese fund.

As the nation tries to avert the European Union’s censure over its fiscal plans, Asset Management One Co. is scooping up Italian debt, citing their appeal relative to Portuguese securities. Italy’s 10-year notes offer a 270-basis point premium over German bunds, twice the spread that Portuguese bonds command despite their similar sovereign ratings.

“Italian bonds are glowing,” said Akira Takei, a global fixed income fund manager at Asset Management One in Tokyo. Downside risk is limited after the excessive sell-off, and the relative appeal of Italian notes has increased amid the worsening political chaos in neighboring France, according to Takei.

Japanese investors bought a net 89.1 billion yen ($791.2 million) of Italian sovereign bonds in October, the most since April, according to the Asian nation’s balance-of-payments data.

Italian yields had climbed earlier, as the government’s 2019 fiscal deficit target threatened to invite the EU’s disciplinary action. Bonds have regained some ground as lawmakers work on a revised budget proposal to the European Commission, narrowing the spread over bunds by almost 50 basis points in the past month.

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