Treasury prices fell on Wednesday, pushing yields higher, after reports said the Italian government would slowly trim its budget deficits from 2020, easing fears of a clash between Brussels and Rome.
The 10-year Treasury note yield TMUBMUSD10Y, +1.01% rose 2 basis points to 3.076%, while the 2-year note yield TMUBMUSD02Y, +1.02% was up 0.4 basis point to 2.819%. The 30-year bond yield TMUBMUSD30Y, +1.08% advanced 2.1 basis points to 3.228%. Bond prices move in the opposite direction of yields.
The yield for the 10-year German bond TMBMKDE-01Y, +3.66% or bunds, was up 1.2 basis points to 0.440%, while the 10-year Italian yield TMBMKIT-10Y, -4.03% shed 3.2 basis points to 3.888%, backing away from its more than four-year high of 3.474%, according to Tradeweb data.
Reports from Italian newspaper Corriere della Sera said though the government’s budget deficit to GDP target would remain 2.4% in 2019, but the following two years would see a fall in deficit targets. This should keep Italy in compliance with the EU’s rules obligating debt-saddled member states to trim their overall borrowing, raising hopes a clash between Rome and Brussels could be averted. Italy’s public debt stood at 132% of its GDP in 2017, but has remained manageable thanks to a gradual decline of the costs for servicing those debts since 2013, according to analysts.
See: Euro rebounds after report Italy will play by EU’s budget-deficit rule
“Italy needs to tread a fine line between avoiding growth-damaging austerity and maintaining fiscal credibility,” wrote Kit Juckes, global fixed income strategist at Société Générale.
The Italian government will need to hand in its draft proposal for the 2019 budget on Oct. 15, after which it will receive the scrutiny of the EU. The past few weeks have seen tit-for-tat remarks between the European officials and politicians in Rome over the appropriate amount of fiscal easing in the next budget year.
On the data front, the Institute for Supply Management will release its nonmanufacturing composite gauge for September at 10 a.m. Economists polled by MarketWatch expect a reading of 58.3%.
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