Italy's Meloni brushes off concerns over rising risk premium for govt bonds

In its Economic and Financial Document (DEF) unveiled this week, the government cut growth forecasts for this year and next, hiked budget deficit targets and projected almost no reduction in public debt through 2026. The spread, or difference, between Italian and German 10-year bond yields – a gauge of market sentiment towards high-debt Italy – was on Friday at around 195 basis points, off from a peak of 200 touched in early London trade, which was the highest since March.

Italian Prime Minister Giorgia Meloni said on Friday she was not worried by the recent rise in Italian bond yields triggered by investors' concerns over the country's weakening economy and fiscal slippage. Early in the day Treasury Junior Minister Federico Freni said an alert threshold for the risk premium of Italian debt over German paper would be 340 or 350 basis points, above the current level of almost 200.

"Italy is solid," Meloni told reporters in Malta on the sidelines of an international meeting. In its Economic and Financial Document (DEF) unveiled this week, the government cut growth forecasts for this year and next, hiked budget deficit targets and projected almost no reduction in public debt through 2026.

The spread, or difference, between Italian and German 10-year bond yields – a gauge of market sentiment towards high-debt Italy – was on Friday at around 195 basis points, off from a peak of 200 touched in early London trade, which was the highest since March. "This anxiety about debt I see in the wishes of those who imagine that a democratically elected government that has a strong majority in Parliament should go home," Meloni added.

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.

The last time the spread was as high as 340 for any length of time was at the height of the sovereign debt crisis in 2012. Italy's public debt, proportionally the highest in the euro zone after Greece's, is seen edging down by just 0.6 percentage points between 2023 and 2026, when it is targeted at 139.6% of gross domestic product (GDP).

The new debt targets incorporate revenues from privatisation worth 1% of GDP or around 21 billion euros ($22.21 billion)which, Economy Minister Giancarlo Giorgetti said on Wednesday, would come from state sell-off in coming years. However, Italian governments have a long tradition of missed privatisation targets dating back to before the COVID-19 pandemic, which opened the way to a long phase of expansionary fiscal policy.

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 pandemic. ($1 = 0.9455 euros) (Editing by Gavin Jones, Mark Potter and Hugh Lawson)

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