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As the ECB raises rates and considers a new tool, Italy leads the bond sell-off


Italy led a sell-off in Southern European bonds on Thursday, after the European Central Bank made its first rate hike since 2011, but disappointed some with news of a new bond market. new tool to manage stress in the debt market. Italian bond yields, already under upward pressure after the fall of Mario Draghi’s government and the specter of a snap election, have increased further, rapidly pushing the gap against highly rated bonds. Germany to nearly 250 basis points.

“We don’t have a lot of transparency and that doesn’t help,” said Marchel Alexandrovich, Europe economist at Saltmarsh Economics in London. Italian 10-year yields hit a one-month high of 3.75% before falling to around 3.60% late in the session, still up about 12 basis points on the day. The closely watched spread for German bond yields is around 230 basis points, already approaching the 252 basis point area it hit just before the ECB’s emergency meeting in June. Greek 10-year yields also rose about 10 basis points to about 3.59%.

The ECB raised its deposit rate to 0%, beating its own guidance for a 25 basis point move as it joined its global peers in raising borrowing costs and ending an eight-year experiment with negative rates. He also unveiled a new tool, the Transmission Line Protection (TPI), saying he would buy bonds from countries that have seen their borrowing costs soar through no fault of their own. , as long as they avoid dependence on a sound economic policy. Analysts said it was difficult to determine what investors were focusing on, but cited a lack of detail and conditions as possible reasons for the sell-off in Italian bonds.

The euro initially benefited from a larger-than-expected rate hike by the ECB, but fell back and last rose only 0.1% to $1.0190. The eurozone’s higher-rated bond markets, such as Germany and the Netherlands, have recovered, after initial selling following a rate hike. The German 10-year Bund yield fell 5 basis points on the day to 1.22%, after rising 10 basis points earlier. Bond yields fell at the end of the session as US Treasury yields fell sharply. German two-year yields, which are more sensitive to short-term interest rate movements, remained higher but retreated from three-week highs reached earlier.

Eurozone banks briefly rallied more than 1% as the ECB ended negative rates and pushed up bank profits. Money markets have moved to the full valuation of another 50 basis point rate hike in September.

“The market has no way of fully appreciating this development and you can see this being reflected in the very strong rise in German yields over the past three months,” said Richard McGuire, head of interest rate strategy at Rabobank. short-term after today’s decision.” The ECB had previously signaled a 25-basis-point move up at its July meeting, but sources told Reuters earlier this week that its board was considering a larger hike to 50 points. basic. The pan-European STOXX 600 index struggled to find its way, falling briefly after the ECB decision before moving sideways.

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  • As the ECB raises rates and considers a new tool, Italy leads the bond sell-off
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