Insider Economy 'Flight to yield' boosts demand for Italy's government bonds

‘Flight to yield’ boosts demand for Italy’s government bonds

Italy’s 10-year bond yield fell to its lowest level since mid-October on Wednesday, as appetite in world markets improved and easing concern about Italian political risks kept investors interested in the bloc’s higher-yielding bond markets.

Having fallen sharply in recent sessions, yields on safe-haven German Bund yields were a touch higher at -0.36% – off three-month lows hit on Tuesday.

Fears about the economic impact from the coronavirus outbreak in China have boosted demand for fixed income in the past week.

Peripheral government bonds, which often trade in line with other riskier assets, however, have outperformed even on days when stocks have sold off.

Commerzbank analysts say “flight-to-yield” is dominating over “flight-to-quality” – a phrase that describes the rush to top-rated, safe assets at times of uncertainty.

With more than half of the euro zone government bond market in negative yield territory, selloffs or auctions tend to be viewed as an opportunity to buy bonds offering any yield.

Greece on Tuesday attracted record orders for a 15-year bond sale. France also received strong demand for a 30-year bond sold via a syndicate of banks on Tuesday, with demand reaching 38 billion euros ($42.16 billion) for the 5 billion euro offering.

French 30-year bond yields are at 0.69%

A ratings upgrade for Greece on Friday and the failure of Italy’s right-wing League to win a key regional election at the weekend, bringing relief to an embattled government, have also boosted sentiment towards southern European bonds.

“The negative yields backdrop and the view that this will stay for a while means the traditional investor base is having second thoughts about staying in the German bond market,” said Rainer Guntermann, a rates strategist at Commerzbank.

“In the periphery, there are some country specific factors – the weekend election in Italy, the credit ratings upgrade in Greece.”

Italy’s 10-year bond yield fell 3 basis points to 0.994% , its lowest level since mid-October. The closely-watched gap between Italian and German Bund yields narrowed to around 134 bps – its tightest since September.

Analysts at Mizuho said they believed the spread had room to tighten further, adding that 30-year Italian bond yields could fall to 1.5% from current levels around 2%.

Trade across euro zone bond markets was expected to be generally subdued ahead of a U.S. Federal Reserve rate decision later in the day.

The Fed is widely expected to keep rates on hold but officials are likely to discuss possible changes to how they manage the U.S. central bank’s key overnight borrowing rate. ($1 = 0.9014 euros)


Top Stories

Nicosia reportedly not updated on EastMed pipeline project’s possible new scenarios

Nicosia was not updated on new scenarios discussed between Greece and Egypt on the ambitious EastMed natural gas pipeline, including one allegedly proposing the...

Police issue 203 fines in 24 hours for breach of coronavirus measures

Police in Cyprus fined 203 individuals over the past 24 hours for violating measures aiming to curb the spread of the coronavirus, according to...

Even CNN reports on Cyprus Church’s denouncement of ‘devilish’ Eurovision entry

Even CNN international news network could not resist the temptation to report the denouncement by the Cyprus Church of the country's entry to Eurovision, Philenews reported on...

Legislators to decide on Cabinet’s local administration reform referendum proposal

Legislators will soon have to decide whether to accept a Cabinet proposal for an island-wide referendum on local government reform to be held on...

A Thai navy officer swims with a rescued cat on his back

A Thai navy officer swims with a rescued cat on his back in the Andaman Sea


Squash soup

Ingredients: 1 kg pumpkin, cut into small cubes, approximately 5 cups 2 medium (400g) sweet potatoes, cut into cubes, approximately 2 ½ cups 1 chopped leek, only...


No visit to Cyprus is complete without enjoying the traditional meal of many small dishes known as ‘meze’. This large feast, which has been a...

Prawns with fried cheese, barley shaped pasta

Put the barley shaped pasta into a small pan with salted water, bring to a boil and when tender, drain. Peal the prawns leaving...

Salmon and shrimp sheftalies

Mix all ingredients for tabbouli in a bowl and keep to one side so flavours can combine. Prepare the sheftalies: wash and soak the casing...