With pressures escalating in the European bond market, Italian bond yields are now hovering on the fringes of the eight-year high, with Italy’s ten-year spread marking its biggest weekly jump since 2020.
In particular, the yield of the ten-year title of the Italian government reached in the last hours up to 3.78%, marking its highest level since 2018, while it is a breath away from the high of 2014 at 3.972%.
Even more, the spread of the Italian ten-year, ie the deviation of the return from that of the corresponding German, the so-called risk premium, has now increased to 234 basis points, recording a two-year high from May 2020.
In the last week alone, the Italian spread has opened by 24 basis points, in its biggest weekly jump since April 2020, mainly due to the strong upward trend after the ECB announcements yesterday.
It is recalled that the ECB announced yesterday that it was ending its current bond-buying program and announced its first interest rate hike in more than 11 years.
Bank President Christine Lagarde referred to an increase of 25 basis points (0.25%) in July but left the window open for the corresponding size of an increase in September, saying that the ECB will first look at the data.
Christopher Rieger, Commerzbank chief interest rate analyst, said that “as more details about the ECB’s intentions become apparent, most do not sound encouraging to the region,” a Reuters report said, noting that the ECB had not discussed any new tools. to avoid pressure.
“The spreads that are expanding aggressively in the region underscore how nervous there is in European government bonds about the impending tightening and a possible asymmetric transmission of increases that could cause problems in the region,” he added.
On the other hand, the German 10-year sees its performance at 1.4%, falling by 3 basis points, while it is close to the 8-year high of 1.47%.
Markets are now pricing the ECB’s interest rate increase by 75 basis points by September, after the bank left room for further growth after that by 25 basis points. previously announced for July.
At the same time, however, they have increased bets on the final levels that European interest rates will reach in the current cycle of increases, setting the ECB key interest rate at 2.1% in February 2024 from 1.8% that prevailed before yesterday’s announcements.
Source: Capital
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