Italy

A trio of funds backed by $3 trillion in global assets reckon the recent sell-off in Italian bonds is overdone. UBS Wealth Management is buying into the weakness in the nation’s debt, along with Allianz Global Investors and Nomura Asset Management, Bloomberg News reported. The surge in Italian bond yields is a reflection of a market in fear, which will be forgotten noise in a few months for Allianz. “The move is completely crazy,” said Kacper Brzezniak, a portfolio manager at Allianz, whose firm overseas 524 billion euros ($605 billion) in assets globally.

Senior European Union officials believe Italy risks facing a massive debt restructuring task - and one that would hit its own citizens hardest - unless it backs down in its unprecedented challenge to Brussels' budget rules. Italy's 2.3 trillion euro national debt dwarfs that of Greece and the euro zone bailout fund would not be able to cope with the costs of supporting its government in a crisis, the International New York Times reported on a Reuters story. Any such crisis could threaten the euro itself, seen by many as the EU's greatest achievement.

The recent clash between Italy’s populist government and the European Union over its ballooning budget deficit has created an attractive buying opportunity for shorter duration Italian sovereign debt, according to UBS Group AG, Bloomberg News reported. The bank initiated an overweight position in two-year government bonds versus cash as there is “only a very low probability that Italy will default within the next two years,” according to a note from Mark Haefele, chief investment officer at UBS Global Wealth Management.

There is "no chance" of Italy defaulting on its debts and the country is very different from Greece, Italy's minister for European affairs was quoted on Wednesday as telling EU lawmakers. Paolo Savona was speaking after presenting a document to Italian lawmakers in the European Parliament in which he proposes a review of the EU's monetary and fiscal policy, the International New York Times reported on a Reuters story. "I think there is no chance that Italy will default on its public debt," Savona said, according to a person who attended the meeting.

The latest collision between Italy’s markets and politics is beginning to fuel concern that shock waves could spread to elsewhere in Europe. As Italian bond yields touched a four-year high, the euro extended losses and the region’s equities slumped, while haven assets such as German bunds and the Swiss franc rallied, Bloomberg News reported. Goldman Sachs Group Inc.

Italy’s new populist leaders appear to be sticking to the program that brought them to power: In their budget plans, they’re charting a course that could ultimately put the entire European project at risk, a Bloomberg View reported. One can only hope that they will see reason. Since forming a government last spring, the coalition of the anti-establishment Five Star Movement and right-wing League has kept everyone guessing about its genuine intentions. Its leaders made expensive promises to Italians, including big tax cuts, a lower retirement age, and even a basic income.

As investors scrambled for more clarity on the Italian budget plan that roiled its markets on Friday, at least one thing was clear: Ten years after the financial crisis, the sovereign-bank “doom loop” still haunts Europe, Bloomberg News reported. A selloff that started in government bonds quickly spread to the debt and shares of the country’s lenders as investors latched onto a problem policy makers have been unable to resolve in that decade -- the potentially vicious cycle between over-indebted governments and the weak banks that funded them.

Italian bonds and stocks fell along with the euro as investor fears over the country’s 2019 budget were reawakened by last-minute friction among political leaders, Bloomberg News reported. The nation’s benchmark stock index tumbled the most in more than a month following newspaper reports that the Five Star Movement and the League were pushing for extra spending and that budget targets due Thursday could be delayed. Still, demand for Italian debt at an auction of five- and 10-year notes stayed resilient.

Alitalia returned to a net profit of 2 million euros ($2.35 million) in the third quarter, Stefano Paleari, one of the commissioners managing the airline, said on Wednesday in a sign that the fortunes of the airline were slowly improving, Reuters reported. Once a symbol of Italy’s post-war economic boom but recently in trouble due to low-cost carriers and high speed trains, Alitalia was put under special administration last year after workers rejected its latest rescue plan.

Giovanni Tria turns 70 on Friday. Whether Italy’s finance minister gets to enjoy his celebrations will probably hinge on events the day before, when he will announce borrowing and spending targets with the potential to send tremors through financial markets and trigger the fury of Brussels.