1. Newsroom
  2. Italy – Back in the firing line
Menu
Analysen 23.04.2020

Italy – Back in the firing line

Italy – Back in the firing line

Our Global Head of Forex Strategy, Peter Kinsella, discusses how Italian bond yield increases are going to affect the euro.



This week the Eurogroup will meet to try to find a solution to financing COVID-19-related health and income support measures for the most badly affected EU nations. Italy, in particular, has forcefully argued for the costs to be borne by the whole of the EU. This has, however, been rejected by northern European countries, who fear that it will lead to a mutualisation of eurozone debt. We anticipate that the Eurogroup will either increase the European Stability Mechanism’s (ESM) borrowing capacity or seek to leverage the European Commission’s future budget revenues. These measures may bring some relief to markets in the short term, however, when the crisis passes, Italy could easily run a debt-to-GDP profile of around 160%.

Consequently, we believe that recent Italian yield increases will be sustained over the medium term, because investors will demand higher risk premia for holding Italian debt. The ECB has allocated around 40% of its recent asset purchases to Italian debt, which is far in excess of the Italian share of the ECB’s capital key. In the absence of ECB purchases, Italian yields would be substantially higher.

When the global recovery emerges in the third quarter, we believe that investors will pay closer attention to eurozone yield developments and this may present material risks for EUR exchange rates.

Our expertise

Peter_Kinsella_150x150.jpg
Peter Kinsella
Global Head of Forex Strategy

Expertise

Globale Aktien

In Unternehmen mit nachhaltig besserer Mehrwertschöpfung investieren.


Auch lesenswert

Analysen 21.05.2024

Embracing regenerative agriculture for sustainable growth

UBP’s impact team believes in the pivotal role regenerative agriculture has to play in addressing environmental challenges and fostering long-term prosperity. This theme can provide fertile ground for investors looking at impact investing.

Analysen 08.05.2024

UBP House View - May 2024

In light of the extended duration of high interest rates, we’re employing a carry strategy, ramping up our allocation to high-yield bonds.

Analysen 26.04.2024

Swiss equities back on the radar

Following a relatively lacklustre performance in 2023 and the Swiss National Bank’s recent interest rate cut, is now the time to revisit the Swiss equity opportunity set? In this Investment Rendez-Vous podcast, Eleanor Taylor Jolidon, co-head of UBP’s Swiss and Global Equity team, walks us through Swiss business models, current valuations and industries of particular interest.