FX.co ★ Italy BTP Yield Rises Amid Debt Concerns

Italy's 10-year BTP yield climbed above 4.62%, hovering near its highest level in three years, as persistent concerns over highly indebted euro area countries continue to weigh on the bond market, with France's fiscal outlook remaining the main focus. In Italy, Prime Minister Meloni aims to bring the 2026 budget deficit below the EU’s 3% ceiling, helped in part by cutting planned defense spending to €14 billion from a previously budgeted €22 billion. However, the government expects the deficit to widen again in the subsequent two years due to increased energy and defense outlays. Meanwhile, the debt-to-GDP ratio, currently at 138.6%, is projected to surpass that of Greece this year, making Italy the most indebted country in the euro area. Both France and Italy face elections next year, while a snap election in Spain scheduled for November adds to political uncertainty across Europe. Elevated energy prices also remain a key concern, keeping inflation elevated, while markets are pricing in roughly two rate hikes by March 2027.