Italian Bonds Set for Worst Week Since 2015 on Political Concern

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.

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“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.

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