Alert threshold for Italian-German risk premium is 340 bps - Treasury official

The so-called "spread" between Italian and German 10-year bond yields – a gauge of market sentiment towards high-debt Italy – is at around 194 basis points, off from a peak of 200 touched in early London trade, which was the highest since March. But economy undersecretary Federico Freni said that a spread of around 200 bps was "not a worrying rate at all".

An alert threshold for the risk premium of Italian government debt over German paper would be 3.4 or 3.5 percentage points (340 or 350 basis points), far above the current level of almost 200, a junior minister at Italy's Treasury said on Friday.

Italy is under growing scrutiny from investors after the government this week cut its growth forecasts for this year and next, hiked its budget deficit targets, and projected almost no reduction in public debt through 2026. The so-called "spread" between Italian and German 10-year bond yields – a gauge of market sentiment towards high-debt Italy – is at around 194 basis points, off from a peak of 200 touched in early London trade, which was the highest since March.

But economy undersecretary Federico Freni said that a spread of around 200 bps was "not a worrying rate at all". "I believe that an alert threshold could be the peak reached in the last three or four years, meaning 340 and 350 basis points," he told Radio 24 broadcaster.

"I don't worry in the slightest, there is absolutely no risk of markets reacting, this is not 2011," Freni added referring to the sovereign debt crisis that paved the way for the technocrat government of Mario Monti. The last time the spread was as high as 340 for any length of time was in 2012.

Italy's public debt, proportionally the highest in the euro zone after Greece's, is targeted to remain stable at around 140% of gross domestic product (GDP) through 2026 under the Treasury's latest Economic and Financial Document (DEF). It is not clear whether the new debt targets incorporate revenues from privatisation worth 1% of GDP which Economy Minister Giancarlo Giorgetti said on Wednesday would come from state sell-off in coming years.

Italy's governments have a long record of missed privatisation targets. Rome must present its budget plan by Oct. 15 to the European Commission, which is aiming to reintroduce amended EU budget discipline rules next year, after the old ones were suspended in the wake of the COVID-19 pandemic.