Italian bond yields near 3-month low ahead of Lagarde presser

Italian borrowing costs sank to their lowest in over three months on Thursday ahead of a European Central Bank press conference where its chief Christine Lagarde is expected to elaborate on a new target widely perceived as having dovish implications.

Italian borrowing costs sank to their lowest in over three months on Thursday ahead of a European Central Bank press conference where its chief Christine Lagarde is expected to elaborate on a new target widely perceived as having dovish implications. The ECB, in its first official policy statement since it tweaked its inflation target, pledged to keep interest rates at record lows for even longer to help sluggish inflation in the euro zone rise back to its elusive 2% target.

German bond yields edged a basis point higher on the statement and euro zone banks ticked higher, but lower-rated euro zone bond yields remained broadly lower ahead of Lagarde's press conference slated to begin at 1230 GMT. "The forward guidance is a bit more dovish and allows for more easy policy. The recalibration is about the duration of support rather than the size of the support," said Piet Haines Christiansen, chief strategist at Danske Bank.

"This is more aligned to the new strategy outcome rather than a new policy signal," he said, adding that the wording on bond buying is unchanged. Italy's 10-year bond yield dropped two basis points to 0.6708%, the lowest since early April, and other southern European benchmark bond yields were also down 1-3 basis points on the day.,,

The ECB's recent statement that it believes any further cut in interest rates would not be beneficial given their already low levels has led investors to conclude that the focus will shift even further to bond purchases. Italy, as one of the lowest-rated countries in the single currency bloc and one of the biggest sovereign borrowers in the world, is seen as the biggest beneficiary of such a shift.

The closely-watched spread between Italian yields and German Bunds - the euro zone's benchmark - stood at 106 basis points on Thursday; still a distance from July's low of 98.72 bps. An improvement in risk sentiment has also helped lower-rated bonds, with Asian stocks gaining in early trade after a rebound in Wall Street overnight, with the anticipation of fiscal and monetary stimulus countering worries about the spread of the Delta variant of COVID-19.

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