Italian Bonds Surge After Fitch Calms Fears of Rating Downgrades

(Bloomberg) -- Italy’s bonds rallied after Fitch Ratings kept the country’s credit rating unchanged, easing fears that it will be downgraded to junk anytime soon.

The yield on 10-year bonds dropped to the lowest level in almost a week following the decision to keep Italy at BBB with a negative outlook. The agency still warned that an extremely high level of government debt and the absence of structural fiscal adjustment poses risks.

Italian bonds have steadied this year after sliding in 2018 as the populist government reined in its budget deficit target to satisfy the European Commission. Investors still have many hurdles to face, including the prospect of snap elections and reviews by Moody’s Investors Service on March 15 and S&P Global Ratings on April 26.

“Fitch’s affirmation of Italy on Friday evening should take the edge out of downgrade fears for the upcoming Moody’s and S&P reviews,” wrote Commerzbank strategists led by Michael Leister. The securities will also see above-average buying from funds at the end of the month to keep pace with benchmark indexes, they said.

The nation’s 10-year bond yields fell seven basis points to 2.78 percent as of 8:10 a.m. in London. The spread over those on their German peers narrowed to 266 basis points.

--With assistance from James Hirai.

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

©2019 Bloomberg L.P.