Italy's borrowing costs were set to climb for the fourth straight week on Friday, as the country bears the brunt of a sell-off that has gripped global bond markets. At one point the 10-year Italian government bond yield, an indication of the rate at which it can raise money in markets, was set for its biggest two-week rise since the 2012 euro zone debt crisis.
As the session wore on, some buying interest saw the yield settle back down to 2.02 percent, slightly down on the day, although it was only a couple of basis points away from notching up its worst period in years. Having hit a trough of 1.05 percent in mid-August, Italy's government borrowing costs are now almost double that, in the wake of Donald Trump's unexpected victory in the US presidential election, and ahead of an Italian referendum that could put Prime Minister Matteo Renzi out of a job.
"Italian yields seem to reach a ceiling at the 2.1 percent mark, but the upcoming referendum has people worried not just about Italy but what it means for the whole of the euro zone," said ING rates strategist Benjamin Schroeder. Most other euro zone debt yields rose on Friday, as the bout of rising inflation expectations in the United States reverberated across global markets. US borrowing costs are set for their biggest two-week rise in 15 years, while their premium over German equivalents is at its highest since at least 1990.
But in the euro zone, Italy has been at the sharp end of the rout as investors start to worry about the political repercussions of the December 4 referendum, which could further destabilise a country battling a banking crisis and weak growth. US 10-year yields hit their highest since December 2015 at 2.34 percent, up 6 bps on the day. Portugal's 10-year yield was up 8bps to 3.85 percent, close to its highest since February, ahead of some potential supply via auctions next week.
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