Issue link: https://maltatoday.uberflip.com/i/1205928
30.01.2020 14 BUSINESS Italy's bond market shines ITALY'S 10-year bond yield fell to its lowest level since early October on Wednesday as sentiment in world markets improved and easing concern about Italian political risks kept investors interested in the euro zone's higher-yield- ing debt markets. Having sold off late on Tues- day, most 10-year bond yields in the euro zone headed lower with German Bund yields not far off three-month lows set this week at around -0.40% . Fears about the economic impact from the coronavirus outbreak in China have boost- ed demand for bonds in the past week. Peripheral government bonds, which often trade in line with other riskier assets, however, have outperformed even on days when stocks have sold off. Analysts say a "flight-to- yield" is dominating over "flight-to-quality" - a phrase that describes the rush to top-rated, safe assets at times of uncertainty. With more than half of the euro zone government bond market in negative yield terri- tory, selloffs or auctions tend to be viewed as an opportu- nity to buy bonds offering any yield. Greece on Tuesday attract- ed record orders for a 15-year bond sale. France also received strong demand for a 5 billion euro, 30-year bond sold via a syndicate of banks on Tuesday, with demand reaching 38 bil- lion euros ($42.16 billion). French 30-year bond yields are at 0.68%, but 10-year yields are at -0.12%, which essential- ly means investors are paying the French government to hold those bonds. A ratings upgrade for Greece on Friday and the failure of It- aly's right-wing League to win a key regional election at the weekend, bringing relief to an embattled government, have also boosted peripheral debt. "e negative yields back- drop and the view that this will stay for a while means the tra- ditional investor base is having second thoughts about staying in the German bond market," said Rainer Guntermann, a rates strategist at Commer- zbank. "In the periphery, there are some country specific factors - the weekend election in Italy, the credit ratings upgrade in Greece." Italy's 10-year bond yield fell almost five basis points to 0.98%, its lowest level since early October. It has tumbled over 20 bps this week and is on track for its biggest weekly fall since late August. Even with demand for safe assets high amid the coro- navirus jitters, German Bund yields are just 4 bps lower so far this week. e closely-watched gap between Italian and Ger- man Bund yields narrowed to 133.40 bps — its tightest since September. "What we have seen is that fundamentals in southern Europe have improved sig- nificantly and in the nega- tive-yielding environment, It- aly and Greece are benefiting," said Pooja Kumra, European rates strategist at TD Securi- ties. Data on Wednesday showed morale amongst Italian manu- facturers and consumers rose in January. On Tuesday, Econ- omy Minister Roberto Gualt- ieri said that the government's 2.2% deficit target would be "very easily reachable." Focus turned to a U.S. Fed- eral Reserve rate decision. e Fed is expected to keep rates on hold on Wednesday but discuss possible changes to how a key overnight borrow- ing rate is managed. Italy's 10-year bond yield fell almost five basis points to 0.98%, its lowest level since early October