Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Italian Bond Rally Hits a Hurdle as Election Uncertainty Grows

Published 07/19/2019, 12:23 PM
Updated 07/19/2019, 12:30 PM
Italian Bond Rally Hits a Hurdle as Election Uncertainty Grows

Italian Bond Rally Hits a Hurdle as Election Uncertainty Grows

(Bloomberg) -- This week’s rally in Italian bonds has come to a halt on uncertainty over whether the country is heading for an election.

Benchmark 10-year yields jumped Friday, after falling to a three-year low Thursday, on a report that Deputy Prime Minister Matteo Salvini hadn’t decided whether to hold a snap election. The securities are still on their longest-winning weekly streak in five years as investors bet on monetary policy easing by the European Central Bank.

Salvini is seen as Italy’s most powerful politician following his League party’s strong performance in May’s European vote. President Sergio Mattarella wants him to make his intentions on an election clear in the next 48 hours, so that any new government can be in place by October to deal with the 2020 budget and deficit talks with the European Commission, according to an official.

“The uncertainty of a general election tends to make investors cautious, hence this knee-jerk BTP selling and spread widening,” said Peter Chatwell, head of European rates strategy at Mizuho International Plc.

The yield on Italy’s 10-year bonds rose five basis points to 1.60%, widening the premium over its German peers by six basis points to 193 basis points. Yields have fallen for seven weeks, the longest streak since 2014.

Italian and Greek bonds have been leading the rally across Europe in the past month after ECB President Mario Draghi flagged possible further stimulus. The ECB meets to discuss policy next week. That means there are now plenty of “willing profit takers” after the run of gains, said Charles Diebel, head of fixed income at Mediolanum S.p.A.

“Many investors recently increased their exposure to peripheral European government bonds on the back of the prospect of ECB easing, expected to be delivered by September,“ said Martin van Vliet, a rates strategist at Robeco. “This bout of uncertainty affects conviction.”

(Adds comment by Martin Van Vliet in the seventh paragraph.)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.