Italian Bond Yields Creep Up before Key Votes in Parliament

LONDON, Jan 18 Reuters Italys borrowing costs crept back up on Monday as Prime Minister Giuseppe Conte faced two days of parliamentary votes that will decide if his fragile coalition can cling to power or has lost its majority.

Political turmoil in Italy, one of the euro zones biggest and most indebted economies, is once again weighing on sentiment. Italian 10year bond yields rose around 9 basis points last week in their biggest weekly jump since October.

Hefty stimulus from the European Central Bank and an expectation that a snap election is unlikely for now have limited the selloff in Italian bonds.

Still, the renewed turmoil has paused a rally in Italys bond market that had sent the closelywatched 10year bond yield gap over Germany to 98 bps just a week ago.

That was the tightest spread since 2016 and it has now widened out to 114 bps. Italys 10year bond yield was almost 3 bps higher on the day at 0.61 in early trade heading back towards sixweek highs hit last week.

We still view snap election risks as remote even if Conte fails, as a government of national unity probably remains the preferred attempt of president Mattarella until the next regular election in 2023, said Commerzbank rates strategist Rainer Guntermann.

Conte will address the lower house on Monday and the upper house, the Senate, on Tuesday about the future of his government after a junior partner quit the cabinet in a row over his handling of the twin coronavirus and economic crises.

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