Italy's Bonds Burdened With Concerns
Italian long-term borrowing costs hit the 7-month maximum. Shares have declined more than 1%. Single currency weakened as well, falling 0.2% to $1.1778, close to 5-month minimum of $1.1763. This came as a reaction to the news that the League and the 5-Star Movement were planning to increase government spending in a deal to form a new coalition government.
Christoph Rieger (Commerzbank's head of rates) commented: "We've had headlines left, right and centre from Italy this week and while the upshot is that the reality is not as scary as thought, the investment community is meeting and deliberating their next steps", adding: "They see the true state of mind of the government and, while the measures don't include debt writedowns, it's clear that there will be no fiscal restraint and no structural reforms for a country that desperately needs it."
Italy's 10-year government bond yield rose 10 bps to 2.22%, marking the largest weekly rise in 2 years. The 10-year German Bund yields spread turned at 159 basis points, the 4-month maximum.
After receiving the news about two parties’ plans, analysts at Goldman Sachs projected that Italy's 2019 government deficit-to-GDP ratio would increase to around 3.5%.
Italy’s stocks FTMIB declined more than 1%. The sector FTIT8300 dropped 2.3% to a 6-week minimum. Main stock index fell 2.6%. Spanish and Portuguese stocks, in their turn, both grew 3-5 basis points.