Italian bonds sell off after Brussels cuts economic forecast
Italy’s bond yields have taken a sharp upward turn after the European Commission sharply cut its growth forecast — just a day after the country had its most successful bond sale.
Brussels has slashed Italy’s 2019 growth forecast to 0.2 per cent, down from a previous projection of 1.2 per cent; if it comes to pass, that would be the weakest economic performance for five years.
The yield on 10-year Italian debt has climbed 12 basis points since Wednesday’s close to 2.954 per cent — its highest since early January. Its spread over the equivalent German Bund, a widely watched indicator of eurozone political stress, hit 280 bps, a two-month high.
The Mediterranean nation’s stubbornly high spread over Bunds is proving attractive for investors seeking to benefit from the additional yield it offers. On Wednesday, Italy saw record investor demand for its 30-year bond syndication, attracting €41bn of orders for €8bn of fresh paper.
A series of blockbuster European sovereign bond sales since the start of the year have bucked forecasts that demand would stutter after the European Central Bank ended its bond-buying programme.
With expectations for monetary policy tightening now on the wane, Italy is particularly popular among investors because of the additional yield it offers.