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By: Kazim Raza Bhatti Pride News
Italy has paid the highest borrowing costs on its debt since the wake of the eurozone debt crisis, after the European Central Bank’s decision to withdraw stimulus measures sparked a sell-off in the bloc’s bond markets.
The Italian government sold €6bn worth of medium- and long-dated bonds at an auction on Thursday at the highest yields in almost a decade.
Scorching inflation, stoked further by Russia’s invasion of Ukraine and its exacerbation of supply-chain pressures, has driven major central banks including the ECB to call a halt to loose monetary policy. Eurozone consumer price growth hit a record 8.1 per cent last month.
ECB president Christine Lagarde said earlier in June that the bank will act in “a determined and sustained manner” to tackle rapidly rising prices — with plans to withdraw a vast pandemic-era bond-buying programme and to raise interest rates next month for the first time since 2011.
That anticipated reversal of ultra-loose policy has, in turn, triggered ructions across the eurozone’s bond markets — dealing a particular blow to the region’s more indebted economies. Falling bond prices have sent yields on the secondary market higher. Those higher yields also increase the borrowing costs countries pay when they issue new debt.
Itlay auctioned €2bn worth of 10-year bonds and €4bn worth of five-year bonds on Thursday, at yields of 3.47 and 2.74 per cent respectively. It last sold 10 and five-year bonds at higher yields in 2014 and 2013 respectively.
The country’s government debt yields, which move inversely to their prices, remain well below the levels reached at the height of the European sovereign debt crisis. But they have zipped higher since the beginning of the year. Last month, Italy sold 10-year bonds at a 3.1 per cent yield.
ECB officials have sought to quell worries about so-called fragmentation risk, where rising interest rates widen the gap in borrowing costs between the bloc’s strongest and weakest economies — leaving the latter cohort in a more vulnerable position.
The bank’s governing council has pledged to create a “new anti-fragmentation instrument” to assuage such concerns.
