Bonds News

Italy's borrowing costs rise as spotlight turns to EU meeting

* Euro zone periphery govt bond yields

LONDON, April 20 (Reuters) - Italy’s borrowing costs rose on Monday, heading back towards last week’s one-month highs, reflecting unease before a European Union summit later this week over how to tackle the economic fallout of the coronavirus crisis.

Selling pressure on Italian government bonds has returned in the past week, undoing some of the benefits of the European Central Bank’s massive bond-buying scheme, after euro zone politicians failed to agree to common debt issuance as a means of addressing the crisis.

Italian Prime Minister Guiseppe Conte used an interview with Germany’s Sueddeutsche Zeitung on Monday to repeat calls for the EU to issue common euro zone bonds to demonstrate the bloc’s solidarity in the face of a pandemic that is likely to trigger the worst recession in years.

Europe will need at least another 500 billion euros from EU institutions to finance its economic recovery, on top of the agreed half-a-trillion package, the head of the euro zone bailout fund, Klaus Regling, said.

“Thursday is the key day this week with the EU leaders summit a potentially big event for the future of Europe as they discuss how close the region can get to joint issuance in the near future,” said Deutsche Bank strategist Jim Reid.

“Expect creative ambiguity to rule as it normally does on the continent. Nevertheless you would expect more explicit details to be outlined as to how Europe will help Italy. Will this be enough to keep Italian spreads (and domestic politics) in check though?”

In early Monday trade, yields across the Italian curve were 4 to 7 basis points higher on the day.

Italy’s 10-year bond yield was up 7 bps at 1.89% -- edging back towards one-month highs hit last week. The yield gap over top-rated German Bunds was at 230 bps, around 10 bps wider from Friday’s closing levels. The Italian bond market faces another test at the end of the week when S&P Global reviews Italy’s BBB rating with a negative outlook.

Fitch ratings downgrade of Portugal’s ratings outlook to stable from positive on Friday highlights the impact of the pandemic on state finances, economy and credit quality.

Portuguese and Spanish 10-year bond yields were up around 2 bps each .

Germany’s benchmark 10-year bond yield was little changed around -0.47%.

Also in focus was a renewed fall in oil prices, with U.S. crude falling over 20% to levels unseen since 1999.

Reporting by Dhara Ranasinghe, editing by Larry King