FX.co ★ Italy's BTP Yield Holds Near 3-Week Low

Italy’s 10-year BTP yield hovered around 4.50%, holding near a three-week low as expectations for a rate hike this month eased following comments by Fed Chair Warsh. At the same time, ECB President Lagarde stated there were still no signs of second-round effects from elevated energy prices, even as markets continue to price in a possible ECB rate increase in December.

While Italy’s risk premia have broadly stabilized, fiscal concerns across Europe remain elevated. Italy’s draft 2027 budget foresees tax cuts and higher spending amounting to 0.98% of GDP, alongside an additional €10.7 billion contribution from the financial sector in 2027. The budget deficit is projected to rise to 3.4% of GDP in 2027, up from 2.9% this year, intensifying worries over debt sustainability. Italy’s debt-to-GDP ratio is expected to overtake Greece’s this year, making it the most indebted country in the eurozone.

Meanwhile, Premier Meloni raised concerns about the Emissions Trading System (ETS) at the European Council, amid warnings from Italy’s largest business association, Confindustria, that its phaseout could weigh on the country’s growth prospects.