Economic news

Italian Bond Yields Fall, Focus on Chance of New Govt

LONDON, Jan 25 (Reuters) - Italy’s borrowing costs fell from two-and-a-half-month highs on Monday as investors focused on the chance that snap elections may be averted by the formation of a new government.

Italian Prime Minister Giuseppe Conte is close to resigning, but hopes then to form a new government that can count on a broader majority, local media reported on Monday.

Conte could hand in his resignation to the head of state as early as Tuesday and then form a fresh coalition that would draw on centrist and “responsible” members of parliament, according to La Repubblica.

Rome’s bonds are rallying after coming under pressure on Friday, when ruling parties flagged snap elections as the only way out of a political impasse.

On Monday, Italy’s 10-year bond yield were last down 5 basis points to 0.66% at 1035 GMT, wiping out much of Friday’s sell-off, after touching two-and-a-half-month highs in earlier trading.

The gap between Italy and Germany’s 10-year yields -- effectively the risk premium on Italian debt -- was at 118 basis points, dipping from its highest since November above 120 basis points on Friday.

“Italian bonds are taking well news of a possible Conte resignation before the senate vote later this week,” said Antoine Bouvet, senior rates strategist at ING.

Italian bonds continued their rally despite a later Reuters headline citing a government source suggesting Conte is not planning on resigning with a view to forming a new government.

“My impression is that the market attributes a good chance of the prime minister’s gambit (resigning now to gain a new mandate to form a new government) of succeeding,” Bouvet said.

Elsewhere, German business morale fell by more than expected in January as a second wave of COVID-19 brought a recovery in Europe’s largest economy to a halt, the Ifo institute business climate index showed on Monday.

Broader euro zone bond yields also fell, with Germany’s 10-year bond yield, the benchmark for the bloc, down 2 basis points to -0.54%..

“2021 feels like a continuation of 2020, so the themes are the same. Last year was about Covid, on the negative side and 2021 seems like that again but more about the exit,” said David Arnaud, a senior fund manager at Canada Life Asset Management.

Focus is also on the European Central Bank’s weekly asset purchase data and speakers including President Christine Lagarde later on Monday.

Euro zone bond yields rose last Thursday, when the bank was perceived in its policy decision as emphasizing that it may not use the firepower of its pandemic bond purchases in full.

Reporting by Yoruk Bahceli and Dhara Ranasinghe, editing by Larry King

Source: Reuters


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