Vespasianus
Princeps thermarum
Reuters
Italian and Portuguese government bond yields were on track on Friday to end 2016 with their first yearly rise since the 2011 euro zone debt crisis.
The rise in borrowing costs in the two peripheral countries, regarded as among the weakest links in the single currency bloc comes against a backdrop of concern about weakness in the banking sector and economy as well as political instability.
"What we seen is that most clients and investors have been worried about the banking situation. There were noises at the start of the year about the Italian NPLs (non-performing loans)situation, and it is still very much in the spotlight," said BBVA strategist Jaime Costero Denche.
He said the threat of ratings downgrades from DBRS for both countries adds to the concerns, as does the political situation in Italy in particular.
Former Prime Minister Matteo Renzi was forced to step down this month after voters rejected proposed constitutional changes in a referendum. The possible rise of anti-establishment party 5-Star Movement is also a concern for the future, said Costero Denche.
Italy's 10-year government bond yield has risen about 21 basis points this year to around 1.81 percent, while Portuguese equivalents have soared about 123 bps to around 3.75 percent. According to Tradeweb data, that marks the first annual rise in borrowing costs since 2011.
ECB QE CHANGES LOOM
Long-dated euro zone government bonds sold off on Friday, the last day before changes to the European Central Bank's bond-buying scheme kick in and the final trading day of 2016.
The ECB announced changes earlier this month to the parameters of the quantitative easing programme, or PSPP, that suggested the focus of purchases would shift to the short end.
The changes include removing the deposit rate floor for purchases and making the minimum maturity for eligible bonds one year instead of two. Euro zone government bond curves are expected to steepen as a result, and the market moved on those expectations on Friday.
"It will take a few weeks to see how the ECB and the national central banks adjust their purchases, but the way inflation prospects evolve as well as the PSPP will be a driver," said DZ Bank strategist Christian Lenk.
"The market is definitely prone for ongoing steepening, even if it is sometimes overdone."
The yield on Germany's 30-year government bond rose 5 basis points to 0.92 percent by 1150 GMT, while the 30-year yields of highly rated countries including the Netherlands, Austria and France were up 4-5 bps.
Most euro zone bond yields rose as world stocks inched higher and oil prices headed for their biggest yearly percentage gain since 2009.
Germany's 10-year yield, the region's benchmark, was up 2 bps to 0.20 percent, and most other euro zone government benchmark bonds were up 2-3 bps.
Italian and Portuguese government bond yields were on track on Friday to end 2016 with their first yearly rise since the 2011 euro zone debt crisis.
The rise in borrowing costs in the two peripheral countries, regarded as among the weakest links in the single currency bloc comes against a backdrop of concern about weakness in the banking sector and economy as well as political instability.
"What we seen is that most clients and investors have been worried about the banking situation. There were noises at the start of the year about the Italian NPLs (non-performing loans)situation, and it is still very much in the spotlight," said BBVA strategist Jaime Costero Denche.
He said the threat of ratings downgrades from DBRS for both countries adds to the concerns, as does the political situation in Italy in particular.
Former Prime Minister Matteo Renzi was forced to step down this month after voters rejected proposed constitutional changes in a referendum. The possible rise of anti-establishment party 5-Star Movement is also a concern for the future, said Costero Denche.
Italy's 10-year government bond yield has risen about 21 basis points this year to around 1.81 percent, while Portuguese equivalents have soared about 123 bps to around 3.75 percent. According to Tradeweb data, that marks the first annual rise in borrowing costs since 2011.
ECB QE CHANGES LOOM
Long-dated euro zone government bonds sold off on Friday, the last day before changes to the European Central Bank's bond-buying scheme kick in and the final trading day of 2016.
The ECB announced changes earlier this month to the parameters of the quantitative easing programme, or PSPP, that suggested the focus of purchases would shift to the short end.
The changes include removing the deposit rate floor for purchases and making the minimum maturity for eligible bonds one year instead of two. Euro zone government bond curves are expected to steepen as a result, and the market moved on those expectations on Friday.
"It will take a few weeks to see how the ECB and the national central banks adjust their purchases, but the way inflation prospects evolve as well as the PSPP will be a driver," said DZ Bank strategist Christian Lenk.
"The market is definitely prone for ongoing steepening, even if it is sometimes overdone."
The yield on Germany's 30-year government bond rose 5 basis points to 0.92 percent by 1150 GMT, while the 30-year yields of highly rated countries including the Netherlands, Austria and France were up 4-5 bps.
Most euro zone bond yields rose as world stocks inched higher and oil prices headed for their biggest yearly percentage gain since 2009.
Germany's 10-year yield, the region's benchmark, was up 2 bps to 0.20 percent, and most other euro zone government benchmark bonds were up 2-3 bps.
