BOND REPORT: Italian Bond Yields Retreat As EU Official Says He Wants To Reduce Tensions With Rome
October 19 2018 - 12:22PM
Dow Jones News
By Mark DeCambre, MarketWatch , Sunny Oh
Italian 10-year government bond yields retreated from their
multiyear high on Friday as a key European Union official sought to
play down tensions with Rome over the government's budget plan.
Yields for 10-year Italian debt fell 9.9 basis points to 3.571%,
after touching a fresh four-year high of 3.777%. Conversely, yields
for the 10-year German bond , known as the bunds, were at 0.439%.
Investors tend to turn to German bonds as a haven during periods of
heightened uncertainty in the eurozone because the country is the
largest in that economic bloc. Bond prices rise as yields fall, and
vice versa.
The spread between German and Italian bond yields, which can
serve as a gauge of investor unease, stands at 3.12 percentage
points after earlier hitting 3.39 percentage points, representing
the widest in about five years, according to Tradeweb data.
Italian government bonds rallied after Pierre Moscovici,
European commissioner for economic and financial affairs, said he
wanted to reduce tensions with Italy over its budget plan.
Moscovici said he wanted to "reduce tensions and maintain a
constructive dialogue" with Italian authorities, according to
Reuters
(https://uk.reuters.com/article/uk-italy-budget-moscovici/eus-moscovici-says-wants-to-reduce-tensions-with-italy-idUKKCN1MT25C).
But some investors were less sanguine about Moscovici's remarks,
framing them as part of the budget wrangling that will go on
between Rome and Brussels.
"The EU is trying verbally to placate Italy, but Italy is not
going to back down from its budget demands," said Mark Grant, chief
global strategist at the investment bank B. Riley FBR Inc.
Earlier in the week, Italy's government approved a draft budget
law for next year, confirming a set of expansionary measures that
could lead to a fast-rising deficit and putting country's officials
on a collision course with EU representatives.
The planned draft law targets a budget deficit of 2.4% of gross
domestic product. EU officials fear the actual deficit could be
much higher than 2.4%, especially if economic growth does not
improve as much as assumed in the budget's projections.
The full draft budget law will be submitted to the Italian
parliament by Saturday.
Meanwhile, the 10-year U.S. Treasury note yield rose 2.5 basis
points to 3.20%, near its seven-year closing high of 3.227%, while
the 30-year bond yield picked up 2.3 basis points to 3.381%,
approaching its four-year high of 3.401%. The short-dated 2-year
Treasury note yield rose 2.6 basis points to 2.900%, close to a
decadelong high.
The yield climb was stoked by a rebound in U.S. stocks and
Italian bonds as investors appetite for risk assets jumped at the
expense of haven assets like risk-free government paper. The Dow
Jones Industrial Average , S&P 500 and Nasdaq were all up by
more than 0.6% on Friday.
On the data front, existing home sales ran at an annual rate of
5.15 million in September
(http://www.marketwatch.com/story/existing-home-sales-slump-to-a-near-3-year-low-as-buyers-back-out-2018-10-19),
marking a 3.4% decline from August. Housing and other
rate-sensitive sectors have struggled under the burden of elevated
bond yields.
Looking ahead, a number of Federal Reserve speakers are on deck.
Atlanta Fed President Raphael Bostic is due to talk at 12 p.m. in
armchair discussion in Macon, Ga., while Dallas Fed President
Robert Kaplan will participate in a Q&A in New York at the
Princeton Club.
(END) Dow Jones Newswires
October 19, 2018 12:07 ET (16:07 GMT)
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