The yield on Italian 10-year
TMBMKIT-10Y,
0.680%

and 30-year
TMBMKIT-30Y,
1.529%

debt fell to record lows on Monday.

As this chart from Deutsche Bank shows, the yield on the Italian 10-year is lower than it was even before Italy became a country. Deutsche Bank strategist Jim Reid attached proxies for Italian debt, such as from Naples, to chart pre-1861 data. (There is also a gap in the data series for the 1700s.)

He also charted debt-to-gross-domestic-product, which shows the Italian economy with an all-time low capability to service that debt.

The move on Monday came after the European Central Bank’s chief economist gave an interview suggesting the central bank may take further action. Among the ECB’s actions stimulus so far is the purchase of government debt from countries including Italy, through what’s called the pandemic emergency purchase program.

“Has the ECB permanently suppressed yields and spreads or are there many more twists and turns to this story over the years ahead? I would lean towards the latter but for now Italian politics and their control of the second wave are acting as strengths and not weaknesses,” Reid said.

David Stockman, the former Reagan-era budget director and acerbic critic, looked at the same chart and issued this brief but withering analysis: “when central banks crush rates, politicians bury their governments in debts.”

The current explosion in debt-to-GDP has been because the latter dropped, precipitously. The Italian economy shrank by 18% year-over-year in the second quarter.

Italy also has been issuing more debt. According to Italian bank Intesa Sanpaolo, Italy is forecast to issue a net €177 billion in new debt in 2020, compared with €54 billion in 2019.

Source Article

Euronext, Europe’s largest stock exchange operator, will get even bigger after it agreed to purchase Borsa Italiana (the operator of the Milan Stock Exchange) from the London Stock Exchange, or LSE, for 4.3 billion euros ($5.1 billion).

The deal is complex and involves many stakeholders across the continent and U.K.

LSE entered into exclusive talks with Euronext last month on the deal after two other major European stock exchange operators — Germany’s Deutsche Boerse and Switzerland’s SIX — were muscled out of the picture.

LSE’s proposed disposition of Borsa Italiana is linked to its own plan to purchase data provider Refinitiv for $27 billion. LSE is still seeking regulatory approval from the EU for that transaction. (Refinitv is 55%-owned by Blackstone Group and 45%-owned by Thomson Reuters)

LSE’s acquisition of Refinitiv would transform LSE into a “capital markets infrastructure and information powerhouse, controlling widely-used services in share, bond and swaps trading as well as clearing, data and indices,” the Financial Times reported.

LSE put Borsa Italiana on the selling block after the European Commission’s competition watchdog raised concerns about LSE’s control over the European bond market.

LSE initially purchased Borsa Italiana in 2007 for 1.6 billion euros ($1.9 billion) – meaning it will make a huge profit on its sale to Euronext.

Upon gaining the Milan exchange, Euronext will operate exchanges with more than 1,800 listed companies and an aggregate market value of about 4.4 trillion euros ($5.2 trillion).

Borsa Italiana’s bond trading platform MTS will also allow Euronext to enter fixed income trading for the first time. MTS oversees the trading of Italy’s 2.1 trillion euro ($2.5 trillion) government bond market.

The deal will also sharply increase the amount of assets Euronext holds in custody on behalf of banks — from 2.2 trillion euros ($2.6 trillion) to 5.6 trillion

By Olga Cotaga

LONDON, Oct 7 (Reuters)The price for benchmark German debt increased on Wednesday after German industrial output unexpectedly slipped in August, suggesting the recovery in Europe’s largest economy from the coronavirus shock could be weaker than hoped.

German 10-year yields fell 1.6 basis points to -0.52% DE10YT=RR after inching to a two-week high on Tuesday.

The day before, the gap between German and U.S. 10-year yields US10DE10=RR widened to its largest since March as U.S. yields rose. They gave back those gains after President Donald Trump on Tuesday abruptly cancelled talks in Washington over coronavirus aid.

For the Italian 10-year government bond, the yield fell to its lowest in more than a year at 0.765% IT10YT=RR as traders expected more monetary policy stimulus from eurozone’s central bank. It last traded down 1.6 bps.

On Friday, the Italian 10-year BTP yield fell to a record low of 0.751%, Tradeweb said.

“People think it’s a little bit of a one-way bet on more stimulus being required from the ECB,” said Lyn Graham-Taylor, fixed income strategist at Rabobank.

On Tuesday, dovish comments from the European Central Bank chief raised expectations for further stimulus.

If the euro strengthened, that would increase the likelihood of ECB easing, Graham-Taylor said.

“If the dollar is stronger, it is probably due to some risk-off factors and this is probably also going to encourage the ECB to have to do more easing,” he added.

Traders await minutes from the Federal Reserve to be released later in the day.

ING analysts said they did not expect the minutes “to be an existential threat to the reflation trade taking hold in dollar rates markets.”

Still, forward Fed Fund rates price in the first full hike only by the middle of 2024, which is slightly more hawkish