International investors are experiencing a week of massive sell-offs in the bond market in a situation of tense calm in the face of inflation data that does not improve, the fear of a looming recession and a monetary policy that, de facto, has made it clear that interest rates will remain high for longer than expected. Italia This Thursday has become the definitive trigger that has caused a collapse in the price of bonds and has triggered (on the contrary) their profitability.
The result of this context of uncertainty is that of a Ten-year Spanish bond that for the first time in almost a decade exceeds the 4% profitability barrier. This episode coincides with bad inflation data in our country, published in its preliminary version this morning, and which shows a CPI for the month of September almost 100 points above August, at 3.5%. But the situation can be extended to the rest of European economies. Italy has been the trigger, to a large extent, for Community debt hits highs today not seen since men in black They walked around the European periphery looking for how to solve the deficit problems of countries like Spain, Portugal, Italy itself and, above all, Greece, which was the one that really fell a decade ago. Sales in public debt spread throughout Europe, where the main references, such as the bund German hit decade highs. In the US the situation is identical, although in your case the paper American already offers returns not seen since Lehman.
On this occasion it is Italy that is really worrying. The Government chaired by Giorgia Meloni this Thursday lowered its growth prospects for this year and also for 2024 and has raised its fiscal deficit objectives. It is assumed that not only will it not comply with the agreement with Brussels, but that its debt, above 144% of GDP, will continue to increase. “Budget deficits are likely to be larger than expected. So we have the resurgence of the so-called bond watcherswhere markets simply cannot tolerate what appear to be not only cyclical but structurally higher deficits“says Mike Riddell, fixed income portfolio manager at Allianz Global Investors, in statements reported by the newspaper. Financial Times. The ten-year Italian bond climbs to levels of 4.8%, these are the highest levels of the decade and, in a certain sense, it represents additional pressure for the European Central Bank (ECB) to maintain high interest rates for longer and, It would even force one more additional rise that is not on the table at the moment.
The news of the worsening outlook in Italy has only muddied the already complicated goal that Europe has set for resuming fiscal rules by 2024, an agreement that should occur, by the way, under the rotating presidency of Spain from the EU. This same Wednesday Francesecond economy of the Union, announced an increase in spending on pensions to combat the high inflation that its citizens are facing. The figure for August was 4.8%. “The first objective is to respond to the country’s biggest inflationary crisis since the 1970s. The second challenge is to reduce the debt and the percentage of deficit,” said the French Minister of Finance, Bruno Le Maire, during the presentation of the Budgets. of the State for next year. The ten-year French debt does not escape sales and climbs to 3.5%. The risk-free asset, the German bond, is trading at levels of 2.9%, not seen since 2011.
“The big unknown now becomes when and which central bank among the main ones will be the first to start reducing rates (…) but the reductions will take time to materialize. Central banks will remain especially vigilant. They will avoid anticipating and causing a resurgence of interest rates. inflation. It is true that the economy is losing traction. Especially in sectors such as manufacturing or real estate. Despite this, the services sector appears more resilient, favored largely by employment that remains in good condition. All these factors will maintain the short-term returns to high levels and will prolong the inversion of the curves,” say Bankinter analysts in their Outlook Report for the fourth quarter of the year.