Italian bond yields are lower across the curve
10-year yields have dipped to their lowest levels since the end of September with 2-year yields slipping to near the lowest levels since June this year. All this of course comes after the reports of the European Commission said to have accepted Conte's proposal of a deficit target of 2.04% next year.
The official announcement is expected to be made tomorrow and then the proposal will be sent back to the Italian parliament for approval before being finalised. The latter is very much a formality at this point.
With the news above, the yields spread between Italian and German 10-year bonds have also tightened to 259 bps on the day. That should at least give one less reason for the euro to worry about for the time being.
While all this budget news may sound positive on the front of it, let's not forget that at the end of the day, a target is after all just a 'target'. Italy's government still looks set to carry forward with fiscal measures that will continue to see debt increase and if the domestic economy fails to recover from its recent setbacks, expect the country's debt-to-GDP ratio to balloon further next year.
And when that happens, we'll be back at where we are again. Talking about Italy's debt problems.
