News 10 october — 21:29

Italian bond yields drop as Tria looks to restore market confidence

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 Italian bond yields fell on Wednesday after the country's economy minister, Giovanni Tria, said the government will do all it can to recover market confidence, Euronews reports.

Tria moved to reassure markets after a volatile early trading session, saying that the current Italy/Germany spread did not reflect Italy's economic fundamentals from the point of view of debt sustainability.

The two-year Italian government bond yield fell sharply after his comments, and was down eight basis points on the day to 1.64 percent, reversing earlier rises.

Italy's 10-year yield was down three basis points at 3.50 percent, while the key spread over Germany tightened to 295 basis points.

Yields had moved higher earlier in the session after a senior Moody's Analytics economist told La Stampa newspaper that Italy's budget is "a mistake," adding to comments from a senior League lawmaker that a downgrade of the Italian debt by credit rating agencies is possible.

Moody's and S&P Global, which both rate Italy two notches above junk, are due to provide an updated opinion on Italy's credit rating in the second half of October. Analysts say around one downgrade is already priced in.

"The outlook after the downgrade is now the focus," said DZ Bank strategist Rene Albrecht. "It will be a volatile session again but we think the government is now more spread-sensitive."

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