FX.co ★ Italy's BTP Yield Falls to Three-Week Low

Italy’s 10-year BTP yield fell below 4.50%, hitting a three-week low amid a broader decline in sovereign bond yields, as expectations of interest rates staying higher for longer fueled concerns about the rising cost of AI-related investments. Despite the drop in yields, Europe’s fiscal worries remain unresolved.

Italy’s draft budget for 2027 foresees tax cuts and higher spending totaling 0.98% of GDP, alongside an additional €10.7 billion contribution from the financial sector in 2027, equivalent to 0.21% of GDP. Contrary to earlier speculation, there was no mention of a comparable levy on energy companies.

The budget deficit is projected to climb to 3.4% of GDP in 2027 from 2.9% this year, intensifying concerns over debt sustainability. Italy’s debt-to-GDP ratio is expected to overtake that of Greece this year, making it the most indebted country in the eurozone.

ECB President Christine Lagarde said there were still no signs of second-round inflationary effects stemming from higher energy prices. Even so, markets continue to price in an ECB rate hike in December, reflecting persistent inflation risks.