Italian government bond yields hovered near recent highs on Tuesday ahead of the release of a services sector survey that investors believe could indicate the depth of the country's economic downturn.
Italy went into a recession in the second half of 2018, capping a politically turbulent year, and manufacturing purchasing managers' index (PMI) data released last week suggested this economic malaise could continue into 2019. The services sector equivalent is due out at 0845 GMT on Tuesday, and a poor reading could bode ill for the country's economy, and by extension, its bond market.
A Reuters poll suggests expectations are for a reading of 50 - bang on the line that separates expansion from contraction. A disappointment could see Italian bonds sell off some more, said DZ Bank analyst Sebastian Fellechner. "Italy is currently the focus of the economic pessimism in the eurozone, so any miss in the services sector PMIs could hurt BTPs," he said.
Italy's 10-year government bond yield edged higher to 2.76 per cent, near a recent three-week high of 2.80 per cent hit on Monday, and well away from January's low of 2.56 per cent. The closely-watched spread over Germany was at 260 bps, as much as 20 bps wider than the levels last week, before the Italian manufacturing PMIs came out.
Two-year yields inched higher to 0.45 per cent, also about five bps off Monday's three-week high. Most euro zone government bond yields were a touch lower on the day as oil prices slid after disappointing U.S. factory data sparked fresh concerns about a slowdown in the global economy.
Final numbers for eurozone PMIs are also due later on Tuesday, with a Reuters poll forecasting a reading of 50.7, suggesting the bloc's economy is marginally in the black. Germany's 10-year bond yield edged lower to 0.175 per cent, staying near one-month lows.
(With inputs from agencies.)