Italian bonds were set for the biggest weekly loss since November 2015 as lingering uncertainty over the Five Star Movement-League coalition’s policy platform weighed on European debt markets.
Ten-year yields climbed 27 basis points in the past five days to 2.14 percent, the highest level since October. The spread over German bunds touched a four-month high of 158 basis points on Thursday, and Commerzbank AG recommends that traders position for it to widen to 190 basis points, while Citigroup Inc. expects a level of 165-175 basis points.
“The coalition implies structurally higher risk premiums given the policy uncertainty,” Commerzbank strategists Marco Stoeckle and Michael Leister wrote in a note to clients. “This should ensure ongoing volatility.”
Five Star leader Luigi Di Maio and Matteo Salvini of the anti-immigrant League are still haggling over elements of their plans for the European Union and deficit spending, as well as the League’s flagship pledges of a flat tax and curbs on immigration, according to a Five Star official who declined to be named. There’s also the issue of who will be prime minister.