FX.co ★ Italy’s 10-Year BTP Yield Near September High on Inflation Fears

Italy’s 10-year BTP yield advanced toward 3.6%, its highest level since late September, and is on track for a 30-basis-point weekly increase as investors reassess inflation risks stemming from the escalating conflict in the Middle East. Intensifying regional tensions have heightened fears of potential disruptions to global crude oil supplies, driving energy prices higher and likely keeping inflation elevated across Europe. This, in turn, has strengthened expectations that the European Central Bank may pursue a tighter monetary policy stance.

On Thursday, several ECB policymakers warned that a protracted war in Iran, especially if it draws in additional countries, could push eurozone inflation higher while simultaneously weighing on economic growth. Money markets currently price in a 60% probability of an ECB rate hike in December and a 90% chance of another increase by June 2027.