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Italian and Greek debt costs hit two-year high on eurozone rate fears

Investors rushed out of Europe’s highest-indebted countries on Friday, as the hawkish European Central Bank meeting on Tuesday continued to tumble markets, pushing Italian and Greek lending costs to their highest level in more than two years.

Greece’s 10-year bond yield rose 0.23 percentage points to 4.28%, climbing above the level it reached at the height of the Covid-19 epidemic, while Italy’s 10-year bond yield soared as prices fell. And rose to 3.75 in 10 years. senate.

The ECB on Thursday Happy Plans to end its bond buying program and raise interest rates for the first time since 2011 next month, hinting that more aggressive interest rate hikes may come later this year.

The move to tighten monetary policy, with the central bank seeking to curb high inflation, has resurfaced Investor concerns The ability of weak eurozone companies to support their enormous debt burdens without ECB support.

The Spanish and Portuguese debt were also hit, while the sale moved away from European bank shares, many of which are heavily exposed to the sale of debt due to their holdings in government bonds.

Italy’s main stock index fell 5%, led by the banking sector. Lenders UniCredit and Intsa San Paolo lost 9% and 7.6% respectively.

Crucially, ECB President Christine Legard said on Thursday that the central bank could introduce a new tool to prevent a “split” of the eurozone by keeping a cap on sovereign lending costs, but offered few details. She also reiterated that the central bank could reinvest the proceeds of the bonds they hold in order to ward off the pressure in the bond market.

“There are big doubts whether reinvestment can really help if things start to go wild,” said Rohan Hanna, a UBS tariff strategist. “There was some hope ahead of the meeting that they were working on some kind of new facility, but Lagard did not tell us anything new. The big question that customers keep asking is who is going to buy Italian bonds as soon as the ECB returns.”

The euro extended declines on Friday, falling 0.9% against the dollar to a three-week low of $ 1.052. The currency initially climbed following the ECB’s announcement on Thursday, but gave up its gains as the market shifted its focus from the prospect of a rise in the eurozone interest rate to a renewed tension in the bond market.

The gap between 10-year Italian and German bond yields, a closely observed index of market pressure, widened to 2.27 percentage points on Friday, the highest since May 2020.

Hannah said some investors had speculated that the ECB might be forced to return to markets if that spread reached 2.5 percentage points – a level that provoked a reaction from the central bank in the early stages of the epidemic.

“After what we saw yesterday, I think many people are wondering if the level at which the ECB is entering and rescuing the situation is now higher than they previously thought,” he said.

Italian and Greek debt costs hit two-year high on eurozone rate fears Source link Italian and Greek debt costs hit two-year high on eurozone rate fears

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