Italy

Italy has less than three months to raise the bulk of its remaining annual financing needs — amounting to about €63bn in fresh debt — as its bond sales programme lags behind those of other big eurozone sovereigns, the Financial Times reported. The nation, which has been hit by a series of sharp bond market sell-offs since late May, has secured less than three-quarters of its total planned 2018 debt sales to meet bond redemptions and its net increase in borrowing, according to a Financial Times analysis.

Three months after the political imbroglio around forming a populist government roiled Italian assets, bond investors are contemplating a fresh hurdle: its first budget, due next month. The big risk is that the euroskeptic Five Star Movement-League coalition breaks the 3 percent deficit limit set under European Union rules, putting the country on a collision course with the bloc, Bloomberg News reported. That’s got traders hunting a variety of strategies, from selling bond futures to buying Euribor options, to guard against the kind of market meltdown seen at the end of May.

Uncertainty in the run-up to Italy’s budget in October is leaving the country’s assets looking exposed. As the populist coalition government prepares its first finance bill, there is once again an uneasy tone to trade, keeping the FTSE MIB out of a broader rally on global markets, while its sovereign debt is also being sold off, sending yields higher, the Financial Times reported. The pattern comes as the ruling parties continue their budget negotiations. The League and Five Star parties are united in power but have opposing policy aims, adding to the uncertainty.

The exodus of foreign investors from Italy’s bond market is gathering pace, with net sales of the country’s sovereign debt climbing to a record level for the second month in a row, the Financial Times reported. Holdings of Italian debt by foreign investors declined by a net €38bn in June, according to recently released figures from the European Central Bank, eclipsing the previous month’s net fall of €34bn, which was itself a record.

Traders have expressed mounting fears for the country’s financial health, and the potential knock-on effects for its European neighbours, The Daily Express reported. At the root of this lies moves by Italy’s new populist government to further increase astronomical levels of public debt - which is already way above the euro-threshold of 60 percent of gross domestic product. Rome's government debt stands at 130 percent of GDP, just below that of the eurozone’s perennial economic basket-case Greece.

The price of Italian government bonds dropped sharply on Wednesday afternoon in a renewed bout of selling amid wider woes for risk assets, the Financial Times reported. The yield on two-year Italian debt — which moves inversely to price — hit 1.435 per cent at one point, up 16 basis points from the day’s open to the highest level since early June. Meanwhile the 10-year yield rose by 12 basis points on the day to 3.2 per cent, also the highest level for two months.

The ups and downs of Italian government bonds are making the country’s banks queasy, Bloomberg News reported. UniCredit SpA and its smaller competitors are seeing their financial resilience being eroded after government bond values declined. The country’s banks hold by far the most state debt among lenders in Europe and with yields moving in reaction to politicians’ declarations, it’s not hard to see more risk ahead.

August may yet prove a sleepy month for the Italian bond market, but the last week has been a reminder not to take a summer lull for granted, the Financial Times reported. A renewed sell-off gripped the €2tn market late last week as the country’s populist Eurosceptic coalition government began negotiations on its debut budget, something the market had not expected until the autumn.

Italian households suffered a much larger loss of income than their German counterparts due to the European Central Bank’s ultralow interest rates, according to an ECB report that appears to dispel some German concerns over the bank’s easy-money policies, The Wall Street Journal reported. German officials have frequently criticized the ECB for hurting the nation’s savers and subsidizing highly-indebted households in southern Europe by introducing low interest rates.

Italian two-year borrowing costs dropped below one percent on Monday as investors hunted for yield, though some of the bullishness was tempered by government officials’ comments that renewed fears about their commitment to fiscal discipline, Reuters reported. Last week’s announcement by Prime Minister Giuseppe Conte on a 2019 budget framework brought bond investors flocking back to Italy, the only short-dated euro zone securities offering relatively high yields.