Italian bond yields hit record low on hopes of new coalition
The yield on Italian government debt has fallen to a record low as hopes grow that a new government will soon be formed, putting an end to the country’s political crisis.
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The 10-year government bond saw its yield, the effective interest rate which moves inversely to the price, fall as much as 11 basis points (0.11 percentage points) today to 1.025 per cent. It now stands at around 1.043 per cent.
Investors were cheered today by reports that the anti-establishment Five Star Movement, which ruled in a coalition with the right-wing League party until last week, had reached an understanding with the centre-left Democratic Party (PD) that could see a government formed.
Leader of the PD Nicola Zingaretti secured the blessing of the party’s executive to ally with Five Star and the two parties – in the past bitter rivals – agreed that Guiseppe Conte would be reinstalled as prime minister if they entered a coalition.
Conte, who is close to Five Star, was prime minister from 2018 until last week, when he resigned with a fierce attack on League leader Matteo Salvini.
Although investors’ hopes were reflected in lower bond yields, the country’s FTSE MIB stock index was down 0.3 per cent by 4.10pm UK time as fears over a US recession and no-deal Brexit worried markets.
There is still a distinct possibility that the talks could break down. “If the two sides are unable to come to terms, an early election will be called, with Matteo Salvini’s rightist League the heavy favourite,” said Matthew Weller, global head of market research at trading platform Forex.com.
However, “for now, traders are taking an optimistic view to the proceedings,” he said. “Bond traders are feeling more confident in Italy’s outlook than they have any point in over a year.”
Read more: Italy’s League floats tax cut paid for by deficit
Italian President Sergio Mattarella has set an effective deadline of this evening for the two sides to reach a coalition agreement.
(Image credit: Getty)