Italian bonds recover as ECB signals help for weaker economies
Italian government bonds rose on Wednesday as the European Central Bank signaled its willingness to try to protect weaker countries in the bloc from rising borrowing costs.
Wall Street stocks also rose from multi-month lows, as investors awaited the Federal Reserve’s biggest interest rate hike in nearly three decades in an attempt to stem rising inflation. leap.
The Stoxx Europe 600 index rose 1.4%, with its banking sub-index up 2.5%. Intesa Sanpaolo and UniCredit, the top two Italian banks, rose 4.6% and 3.7%, respectively.
Yields on Italy’s 10-year bonds, which affect borrowing costs for governments and consumers in the heavily indebted country, have skyrocketed in recent days after ECB confirmed the end of the bond-buying stimulus, which fell 0.37 percentage points to 3.8% – down from Tuesday’s high of about 4.2%. Bond yields decrease as prices rise.
On Wednesday, the ECB held an unscheduled meeting to discuss “current market conditions” with a pledge to “apply flexibility” in how it reinvests proceeds from bonds purchased. under its pandemic emergency purchase plan.
It also said it would “accelerate the completion of the design of a new defrag tool”, refers to a mechanism that could prevent eurozone governments from paying very different financing costs.
Concerns about weaker countries in the eurozone have grown since last Thursday when the ECB confirmed, facing record inflation, that it was ready to raise interest rates in its first move since 2018. 2011.
“There are concerns about this notion of fragmentation when you get different monetary policy outcomes in different countries in the eurozone,” said Edward Park, chief investment officer at Brooks Macdonald. Edward Park, chief investment officer at Brooks Macdonald.
The gap between Italian and German 10-year yields – a measure of financial stress in the single currency bloc – stood at 2.17 percentage points following the ECB statement, down from 2.41 percentage points in the previous session.
On Wall Street, the S&P 500 stock index rose 1% before the end of the Fed’s rate-setting meeting late Wednesday. On Monday, concerns about tighter monetary policy were put the S&P in a bear marketUsually defined as a 20% drop from a recent peak.
The tech-heavy Nasdaq Composite rose 1.8 percent.
The sell-off earlier this week was fueled by news in The Wall Street Journal that the Fed is considering raising rates by 0.75 percentage points larger than expected at today’s meeting, which would be the first move of that extent since 1994.
“I don’t think this is necessarily a bad thing,” said Baylee Wakefield, a multi-asset fund manager at Aviva Investors, adding that a quick rate hike builds confidence in ‘reputation’. of central banks and an opportunity to “show they can be nimble. ”
The annual rate of US consumer price inflation hit a four-decade high of 8.6 percent in May when Russia’s invasion of Ukraine raised the cost of fuel and food. Money markets are pricing lending rates at 4% next year, from 0.75% to 1% now.
Yields on the 10-year Treasury note fell 0.1 percentage point to 3.38 percent, still near the highest level since 2011.