Italian Bonds Surge as Central Bank Bets Ignite Hunt for Yield
Italian Bonds Surge After ECB Reignites the Hunt for Yield
(Bloomberg) -- Italy’s bonds rallied to unwind all the losses suffered since the country’s coalition government took office in June last year and roiled markets with its ambitious spending plans.
The rally that notwithstanding, the extra yield that investors seek to hold the nation’s debt over German bunds held well above the average of the past three years, suggesting that the latest move is more a reflection of a grab for yields after this week’s ECB meeting rather than an improvement in sentiment toward Italy.
Italian debt is the highest-yielding in the euro area after Greece, though some investors have been put off by the prospect of a renewed battle between Rome and the European Union over its budget deficit. That risk is now being shielded by the ECB providing more cheap loans for banks and the prospect of it restarting a program of bond-buying.
“This is a yield grab with a capital Y,” said Martin van Vliet, a rates strategist at Robeco. “It’s the ECB jumping on the dovish bandwagon that’s driving this.”
Italian 10-year yields fell as much as 21 basis points to 2.28%, the lowest level since May 2018. The spread over German bonds dropped 14 basis points to 259 basis points, which was only a five-week low.
The rally led gains across euro-area debt, with Spanish and Portuguese yields falling about seven basis points. U.S. Treasuries also surged, pushing yields down five basis points to 2.06%, following weaker-than-forecast jobs numbers in the world’s largest economy.
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Italian bonds had sagged in recent months as frictions grow among its ruling coalition parties and as the EU looked set to try to discipline Italy over its swelling deficit. The country’s central bank gave investors another comfort on Friday, saying the economy will “resume a moderate pace of growth in the second half of this year.”
To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee
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