FX.co ★ Italy's BTP Yield Retreats From Three-Year Peak

Italy’s 10-year BTP yield slipped below 4.55%, pulling back from a three-year high as a drop in oil prices helped stem the bond selloff driven by concerns over Europe’s fiscal outlook. Risk sentiment improved further after President Trump said the United States would not attack Iran before next month’s midterm elections, tempering fears of additional disruptions to energy supplies.

Italy’s risk premium narrowed, with the spread over safe-haven German Bunds shrinking to 107 basis points from 130 basis points last Friday. At the same time, markets have pared back expectations for ECB rate hikes and now foresee the policy rate at around 3.2% by late 2027.

Nonetheless, Italian yields remain close to multi-year highs, and the country’s debt burden is still a key concern. Italy’s debt-to-GDP ratio, currently at 138.6%, is projected to overtake Greece’s this year, making it the most heavily indebted member of the eurozone.

Against this backdrop, the European Commission’s finance chief has called for stricter budgetary discipline, rejecting appeals from Italy and Greece for greater fiscal flexibility. Meanwhile, the Italian government is in discussions with banks and energy companies over possible financial contributions ahead of its 2027 budget, which is due to be presented next week.