Home Business Italy’s higher borrowing plans hit Eurozone bond market.

Italy’s higher borrowing plans hit Eurozone bond market.

Italy’s higher borrowing plans hit Eurozone bond market.

Eurozone government borrowing costs reached their highest level in over a decade due to concerns over elevated Italian and French budget deficit forecasts and expectations of prolonged higher interest rates. The spread between Italian and German bond yields, a measure of market risks in the euro area, hit its widest level since the US banking crisis in March. Italy’s 10-year yield also rose to its highest level since 2013, while France’s 10-year bond yield reached its highest since 2011. The bond market sell-off further intensified as central banks signaled that borrowing costs would remain high to tackle inflation before considering rate cuts.

The surge in borrowing costs was accompanied by a €3bn sale of 10-year bonds by the Italian treasury, which offered investors a 4.93% yield, the highest since 2012. Italy’s government revised this year’s fiscal deficit projection to 5.3% of GDP, up from the previous target of 4.5% due to the soaring cost of a controversial tax credit scheme for home improvements. Next year’s deficit target was also increased to 4.3% of GDP, allowing the government to prioritize policies such as aiding low-income families and incentivizing population growth. The widening spreads between Italian and German bonds were attributed to the unexpected increase in Italian deficit projections, which would result in a larger supply of bonds for the market to absorb.

Concerns about persistent inflation and tight monetary policy were further exacerbated by surging oil prices, which reached a 10-month high of over $97 a barrel. The combination of market moves and heightened risks led to growing fears of a recession and financial crisis. The bond market was described as being “caught in a perfect storm,” as investors faced wrong positioning, revisions to budget deficits, and elevated inflation expectations.

Source link


Please enter your comment!
Please enter your name here