Italian bond yields carve out fresh multiyear highs as fears of EU budget clash rise

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Italian 10-year government bond yields jumped to a fresh multiyear high Friday as a conflict with the European Union over the country’s budget plans came to a fore.

Yields for 10-year Italian debt














TMBMKIT-10Y, +0.91%












 were at fresh 2014 highs at 3.777%. Conversely, yields for the 10-year German bond














TMBMKDE-10Y, +0.83%












known as the bunds, were at 0.402%, hitting the lowest since September. Investors tend to turn to German bonds as a haven during periods of heightened uncertainty in the eurozone because the country is the largest in that economic bloc. Bond prices rise as yields fall, and vice versa.

The spread between German and Italian bond yields, a measure of concerns in Europe, stands at 3.375 percentage points, representing the widest in about five years.

Earlier in the week, Italy’s government approved a draft budget law for next year, confirming a set of expansionary measures that could lead to a fast-rising deficit and putting country’s officials on a collision course with EU representatives.

The planned measures included in the draft law are set to widen the budget deficit to 2.4% of gross domestic product. EU officials fear the real deficit could be much higher than 2.4%.

The full draft budget law will be submitted to the Italian parliament by Saturday.

European Central Bank President Mario Draghi has said countries questioning the EU’s budget rules could damage growth and financial conditions in a summit on eurozone integration, according to Reuters, in an apparent criticism of Italy, though he didn’t name the country outright.

Meanwhile, the 10-year U.S. Treasury note yield














TMUBMUSD10Y, +0.36%












was at 3.171%, down from 3.175% late Thursday, while the 30-year bond yield














TMUBMUSD30Y, +0.34%












was virtually unchanged at 3.357%, hovering near its four-year high of 3.401%, according to Tradeweb data.

The short-dated 2-year Treasury note yield














TMUBMUSD02Y, +0.60%












was at 2.883%, compared with 2.874%, after briefly pushing above 2.90% to hit a decadelong high on Thursday.

Political volatility in Europe and within U.S. stock benchmarks has engendered some buying of U.S. Treasurys, particularly as the Dow Jones Industrial Average














DJIA, -1.27%












S&P 500














SPX, -1.44%












and Nasdaq














COMP, -2.06%












 ended sharply lower in the previous session.

Looking ahead, a report on existing home sales is due at 10 a.m. Eastern Time, while a number of Federal Reserve speakers are on deck. Atlanta Fed President Raphael Bostic is due to talk at 12 p.m. in armchair discussion in Macon, Ga., while Dallas Federal Reserve Bank President Robert Kaplan will participate in a Q&A in New York at the Princeton Club.

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Source : MTV