Italy’s 10-year BTP yield falls below 4.7% from three-year high

  • Italy’s 10-year BTP yield fell below 4.7% as traders assessed inflation and fiscal risks.
  • Eurozone inflation reached a three-year high, supporting expectations for a third ECB hike by year-end.
  • Italy’s 2025 budget deficit stood at 3.1% of GDP, above the EU’s EDP ceiling.

Italy’s 10-year BTP yield fell below 4.7%, easing from its highest level in three years as traders balanced elevated inflation against fiscal concerns across Europe. Eurozone inflation reached its highest level in three years, as expected, reinforcing expectations for a third European Central Bank rate hike by year-end. However, concerns about debt affordability and government spending tied to high energy costs in heavily indebted member states have reduced expectations for the ECB’s tightening path next year to two or three hikes, from four previously. Italy’s 2025 budget deficit was confirmed at 3.1% of GDP, above the EU’s EDP ceiling. A reported reduction in defense spending to 0.6% of output from 0.9% could ease pressure on Italian bonds, although confirmation was due later Friday. The BTP-Bund spread recorded its biggest one-day increase since 2020 on October 1st.

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