Italian bond yields rise after source denies Germany plans to issue joint debt

Posted on October 11, 2022Comments Off on Italian bond yields rise after source denies Germany plans to issue joint debt

© Reuters. FILE PHOTO: A picture illustration of euro banknotes, April 25, 2014. REUTERS/Dado Ruvic/File Photo

By Harry Robertson

LONDON (Reuters) – Italian bond yields rose on Tuesday after a German official denied that the country’s government plans to support the issuance of joint European Union debt.

German yields eased, having jumped the previous day after Bloomberg reported that the government would support issuing join EU debt to tackle the energy crisis.

However, a German government official later denied the report, saying no joint debt plans are afoot. “Such plans are not known in the government,” the source told Reuters on Monday.

Italy’s 10-year government bond yield was last up 7 basis points to 4.702%, although it remained below the 9-year high of 4.927% touched on Sept. 28. Yields move inversely to prices.

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

The yield on Germany’s 10-year bond was down 1 bp to 2.313% on Tuesday, although it remained well above Friday’s closing level having risen 13 basis points on Monday.

Investors believe a joint debt issuance plan would benefit Italy – a highly indebted economy that faces steeper borrowing costs in international markets – but be a risk for Germany.

The gap between Italy and Germany’s 10-year yields widened 14 bps to 237.8 bps, after falling 25 bps on Monday. Analysts watch the so-called spread closely, taking it as a sign of the differing pressures on Europe’s weaker and stronger economies.

“Yesterday’s price action gave us a taste of what could be in store,” Rieger said. “Should these rumours materialise, there’s certainly more downside for that spread.”

Traders in euro zone bond markets were also nervously analysing the latest intervention from the Bank of England, which was forced to start buying index-linked government bonds on Tuesday as the country’s market turbulence continued.

The yield on British 10-year bonds was last down 5.5 bps to 4.417% in early trading. It nonetheless remained around 130 bps higher over the last month.

As traders weighed up reports on mutual debt issuance, the EU kicked off a fixed income sale on Tuesday. It will raise 11 billion euros from the reopening of a 2029 bond and the sale of a new 20-year bond that will back its COVID-19 recovery fund and macro-financial assistance programme, according to a lead manager memo seen by Reuters.

Meanwhile, Germany started a sale of a new syndicated 30-year bond that will price later on Tuesday, according to memos seen by Reuters.

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Comments Off on Italian bond yields rise after source denies Germany plans to issue joint debt