Italian bond yields rise as German support for shared EU debt looks unlikely


LONDON, Oct 11 (Reuters) – Italy’s 10-year bond yields rose on Tuesday after a German official dismissed a report that the country’s government was planning to support the European Union’s issuance of common debt.

German yields fell after spiking the day before after Bloomberg reported that the government would back issuance of joint EU bonds to deal with the energy crisis.

However, a German government official told Reuters later Monday that “there are no such plans known in the government”.

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The 10-year Italian government bond yield was last up 9 basis points to 4.701%, although it remained below a 9-year high of 4.927% hit on September 28. Yields move inversely with prices.

The yield on the 10-year German bond fell 2 basis points to 2.307% on Tuesday, although it remained well above Friday’s close after rising 13 basis points on Monday.

Under a joint debt issuance plan, EU countries would effectively pool their credit ratings, raising borrowing costs for stronger economies like Germany but lowering them for larger borrowers like Italy.

The Reuters report “has helped stabilize Bunds while BTPs are under pressure, or at least reverse some of the gains they had after the Bloomberg story yesterday,” said Christoph Rieger, head of credit research at Commerzbank . German government bonds are known as Bunds, while their Italian counterparts are commonly referred to as BTPs.

Rieger said worries about disarray in UK bond markets and a costly sale of German 30-year Bunds are likely to have increased selling pressure in Europe on Tuesday.

Germany and the European Union saw weak demand for sales of long-term debt, which raised a total of 14 billion euros, demonstrating the challenges facing borrowers in a market shaken by the impact of the UK budget and the potential for further debt issuance to cope the energy crisis. Continue reading

The gap between Italy and Germany’s 10-year yields widened 14 basis points to 238.85 basis points after falling 25 basis points on Monday. Analysts are closely watching the so-called spread as a sign of the different pressures on the European economies.

Traders in euro-zone bond markets also nervously analyzed the recent intervention by the Bank of England, which was forced to start buying index-linked government bonds on Tuesday as the country’s market turmoil continued.

The Bank of England confirmed it had bought 1.947 billion pounds ($2.15 billion) of inflation-linked UK government bonds on Tuesday, its first emergency gilt-buying operation of its kind.

The UK 10-year bond yield fell 5 basis points to 4.418%. Still, it remained around 130 basis points higher over the past month.

“In any case, there are a lot of nervous movements,” said Ravin Seeneevassen, senior portfolio manager at Allianz Global Investors. “The fiscal situation is coming to the fore again, whether in Germany or in the UK.”

As traders weighed reports of mutual debt issuance, the EU launched a sale of fixed income securities on Tuesday. It will raise €11 billion from reopening a 2029 bond issue and selling a new 20-year bond that will support its COVID-19 recovery fund and macro-financial assistance program, according to a senior manager memo seen by Reuters.

($1 = 1.0311 euros)

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Additional reporting by Yoruk Bahceli and Lucy Raitano; Edited by Kirsten Donovan and Bernadette Baum

Our standards: The Thomson Reuters Trust Policy.


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