Italian Bonds Fall After Salvini Threatens to Break Up Coalition
Italian Bonds Fall After Salvini Threatens to Break Up Coalition
(Bloomberg) --
Italian bonds declined after a report that Deputy Prime Minister Matteo Salvini is threatening to bring down the government unless his demands for changes in the cabinet are met.
The 10-year yield premium over Germany, a key gauge of risk in the Mediterranean nation, climbed toward the widest level in a month. The newspaper Corriere della Sera reported that Salvini has given Prime Minister Giuseppe Conte until Monday to replace some cabinet members including Finance Minister Giovanni Tria, who is seen as a brake on the coalition’s spending plans.
“It was Salvini saying if he doesn’t get his own way, the coalition isn’t for him,” that drove Italian bonds down, said Lyn Graham-Taylor, senior rates strategist at Rabobank International. “We like tighter peripheral spreads.”
The sell-off underscores the fact that investor sentiment toward the populist government still remains fragile, even after a global hunt for positive yields fueled a rally in the nation’s bonds in recent months. While the 10-year debt of peers such as Portugal and Spain now yield close to nothing, Italy’s still offers a yield of about 1.5%.
The yield spread over Germany rose by as much as nine basis points to 2.09%, before paring the increase to four basis points. The 10-year yield was up five basis points at 1.47%, after touching a high of 1.53%. The two-year rate rose three basis points to 0.004%. Volumes in futures were running at around 150% of the 10-day average.
Japanese investors bought a record amount of Italian bonds in June, according to the Asian nation’s balance-of-payment data released Thursday. Italy faces a credit review by Fitch Ratings Friday, which currently ranks the country two notches above junk. Both Danske Bank AS and Societe Generale SA both expect no change in ratings.
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, Anil Varma
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