Italian bonds rise as ECB appeases investors

12/2, 11:25 AM (Source: TeleTrader.com)

Italian government bonds rallied on Friday as yields started falling across the board on expectations the European Central Bank (ECB) will step in and buy Italy's debt if the country votes "no" in a referendum on Sunday, and thereby drives up the cost of borrowing.

After they ended up on the wrong side of Britain's vote to leave the European Union in June and Donald Trump's victory in the United States presidential elections last month, investors started betting that Italians would reject constitutional reforms in the upcoming referendum. However, a number of officials from Italy, including the finance minister Pier Carlo Padoan, urged calm and insisted the country will certainly not collapse whatever the outcome of the vote. At the same time, the ECB's quantitative buying program is expected to put a lid on Italian bond yields at least temporarily, even though it is not a substitute for the much needed structural and fiscal reforms.

The yield on 10-year Italian bonds clawed back below 2% to 1.97% at 11:15 a.m. CET, while their German equivalent, a benchmark for the Eurozone, dropped to 0.333%. The yield on British gilts of the same maturity fell to 1.457% in yield, whereas in the U.S., the yield on 10-year Treasuries edged down to 2.4284%.

Teletrader Newsroom / IB