Italian bond yields rise ahead of key parliamentary elections

Italian bond yields rise ahead of key parliamentary elections

By Scott Kanosky – Italian debt yields rose on Friday ahead of a play-off election that, according to the latest polls, could see a new far-right coalition take power in both houses of parliament in Rome.

As of 10:37 GMT (06:37 EST), the yield on the benchmark index jumped to 4.277% after closing the previous day at 4.191%. It also touched a rise of 3.038% in Friday’s trading. Bond prices usually fall as yields increase.

Campaigning ahead of Sunday’s election is reaching its final stages, with pollster group Termometro Politico suggesting many Italians will lend their support to one of the country’s most right-wing governments since World War Two.

The party is expected to be led by Giorgia Meloni, the controversial head of the nationalist Brothers of Italy party, which is expected to receive 25.2% of the vote. The bloc will also include the “League” of populist leader Matteo Salvini and the parties of former Prime Minister Silvio Berlusconi’s “Forza Italia”.

Meloni has pledged stricter immigration controls and lower taxes. It has also promised a broad commitment to EU budget policies to ensure Italy receives important tranches of a €200 billion aid package from Brussels.

However, analysts have expressed concerns that potential coalition members may not follow these rules, which were drafted by outgoing Prime Minister Mario Draghi in order to secure funding.

Rome will need to meet 55 new political targets in order to receive the next round of payments in December. Without funds, the prospective coalition may struggle to revive growth, especially in an environment where interest rates are rising sharply adding to the cost of servicing Italy’s huge debt burden. The debt-to-GDP in the country has ballooned to 151% and could grow even more without an injection of cash from the EU.

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Despite pledging to abide by Draghi’s stated reform criteria, Meloni has previously suggested she might call for a review of the EU’s aid programme, citing the recent rise in oil prices. Analysts at Teneo note that while the Meloni government is unlikely to head to Brussels, its plans for the Italian economy will create “some friction” with the European Union.

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