Giovedì, 18 Ottobre 2018

Narrowing spread continues to delight investors


(By Christopher Livesay)
Rome, August 13 - Italian bond yields continued to
slip lower Tuesday while the spread between Italy's 10-year
paper and its safe German counterpart narrowed to its lowest
point in two years.
After narrowing to a two-year low Monday of 245.5 basis
points, the spread continued to charm investors Tuesday,
slipping below the 240 mark, at 237.9 points in late trading.
The yield, an equally important indicator of investor
confidence in Italy's ability to pay off its debt and emerge
from economic crisis, was down to 4.15%.
The positive trend was spurred by the ZEW German economic
sentiment indicator, which hit its highest level since March.
So narrow a spread has not been seen since 2011, well
before seismic political disruptions ranging from a flawed
national election to struggles to form a coalition government
rocked Italy and upset its troubled economy.
Indeed, the spread widened to more than 500 points in
November 2011 when then-premier Silvio Berlusconi was forced
from office amid fears of a Greece-like financial collapse.
Since then, the Italian political landscape has seen
enormous changes while its economy continued to weaken with the
worst recession in at least 20 years which also caused a jump in
But it appears that investors are beginning to believe
politicians' claims that a recovery is in sight.
Last week, Economy Minister Fabrizio Saccomanni predicted
that the Italian economy will begin to show signs of recovery in
the second half of this year.
He spoke after national statistics agency Istat reported
that Italy's gross domestic product (GDP) shrank by 0.2% in the
second quarter, less than what analysts were forecasting and
considerably less than the 0.6% loss reported in the first three
months of year.
The fact that the economy outperformed expectations is a
significant sign, Saccomanni said.
"I think if we can have a positive sign in the fourth
quarter, it will make it easier to manage the economy and public
To stimulate growth, the coalition government of Premier
Enrico Letta has been attempting a number of measures including
paying billions of longstanding bills owed to private companies.
The initiative that began under former caretaker premier
Mario Monti envisioned 40 billion euros in debt payments owed to
private enterprise, as a way of injecting much-needed cash into
the moribund economy.
That likely contributed to the rise of Italy's public debt,
which the Bank of Italy says reached a new record in June.
Italy's public debt reached 2.0751 trillion euros, up 0.6
billion euros from May, the central bank said Monday.
Surprisingly, it also noted that despite the deep
recession, tax revenues in Italy rose by just over 5% in the
first six months of this year - including a jump of about 21.5%
in June alone.
From January to June 2013, the government's revenues from
taxes totalled 189.436 billion euros, an increase from 180.159
billion during the same period in 2012.
And in June 2013, revenues rose to 46.3 billion euros from
the 38.1 billion euros reported in June 2012 - an increase of
8.2 billion euros, or about 21.5% the central bank reported.

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