Debates on Italy's Budget Caused Pressure on Bond Market
Giovanni Tria (Italy’s Economy Minister) has urged the ruling coalition's two political leaders to tone down their comments on the forthcoming budget, amid fears of a speculative attack on the nation's bond market.
Investors are concerned that tax cuts and welfare spending proposed by the ruling coalition of Di Maio's anti-establishment 5 Star Movement and Salvini's far-right League could send Italy's mountain of debt higher. Di Maio and Salvini have demanded that the European Union allow their new government to pursue a more expansive budget.
Italian government bond yields fell on Wednesday on market speculation that Italy may try to secure help from the European Central Bank in the event of a speculative attack. Yesterday, 2-year yields were last down 10 basis points at 1.19%. 10-year yields fell 5 bps to 3.13%, narrowing the gap over German Bund yields to 272 bps from 280 bps late on Tuesday.
Italy has the heaviest debt burden among major Eurozone economies (about 130% of gross domestic product). Italian 2019 budget is due to be outlined by the end of October and must be approved by the European Commission.