LONDON: Italy’s borrowing costs rose sharply on Thursday, with analysts citing local press reports of a budget meeting that renewed market concerns about tensions within the ruling coalition.
Italian papers reported that lawmakers would meet on Thursday to discuss the budget for 2019. There are worries that Economy Minister Giovanni Tria faces pressure from within the government to ramp up spending and challenge EU budget rules.
However an Italian government source told Reuters the meeting was expected to be postponed because some participants could not attend. “What is more the market mover is that they are concerned about the meeting in Italy,” said Daniel Lenz, rates strategist at DZ Bank.” Tria is more pro-European and he prefers it if Italy sticks to European financial rules, the others want support for growth.”
The yield on Italy’s 10-year government bond rose three basis points to a five-week high of 2.91 percent . It was set for its biggest daily rise in over a month with a jump of 14 basis points.
Short-dated two-year yields rose well over 15 bps to 0.95 percent — the highest since late June.
The closely watched spread between Italian and German 10-year bond yields was at its widest in a month at 245 bps. .
Poor results from Poste Italiane also raised concerns that Italy’s banking sector could take a hit from the recent bond market sell-off.
Other analysts also cited greater certainty of a US rate hike, as well as thin summer trading volumes as contributers to the move in Italian yields.
“From my point of view there is no reason for triggering such a move,” said Sergio Capaldi, fixed income strategist at Intesa SanPaolo. “The only reason I can see is that the Fed is going to raise more, which in part was priced in, but after the meeting yesterday the scenario has become more and more likely.”
On Wednesday, the US Federal Reserve kept interest rates unchanged but characterized the economy as strong, keeping it on track to increase borrowing costs in September.
The Bank of England meanwhile raised rates on Thursday by 25 basis points to 0.75 percent, in line with expectations. Primary activity continued with Spain selling 4.5 billion euros ($5.2 billion) of bonds at a quadruple auction on Thursday, while France raised over 6 billion euros from a bond auction.
Broader euro zone bond yields were mostly lower as concerns about global trade tensions boosted demand for safe haven debt.
Bund yields in Germany, the euro zone’s benchmark bond issuer, extended their falls as Italian bonds came under pressure.