Markets react negatively to Italy’s budget which aims for higher deficit
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Italian bank shares came under intense pressure on Friday, as a sharp drop in prices for the country’s sovereign debt put the sector in investors’ crosshairs. Shares in the country’s major banks fell, with Banca Popolare di Milano sliding more than 9 per cent in a day of tumult for Italian assets after the country’s populist government agreed a budget with bigger spending plans than expected. BPER Banca fared marginally better, falling 8.3 per cent. The weakness in Italian financials dragged down the FTSE MIB — the benchmark index closed 3.7 per cent lower.
The yield on the 10-year benchmark Italian bond jumped 24 basis points to hit 3.15 per cent, and two-year bond yields climbed by more than 26bp to more than 1 per cent on Friday.
“This is a serious situation,” said Silvia Dall’Angelo, senior economist at Hermes Investment Management. “A slide in the value of sovereign bonds erodes banks’ capital and Italian banks hold a lot of public debt. The deterioration in the fiscal picture could also result in downgrades from the rating agencies too, which could have the result of eroding banks’ balance sheets even further.”
BPR Banca was the worst affected on Friday, shedding more than 9 per cent, followed by Banca Popolare di Milano, UBI Banca and Intesa Sanpaolo.
Italian bank shares came under intense pressure on Friday, as a sharp drop in prices for the country’s sovereign debt put the sector in investors’ crosshairs. Shares in the country’s major banks fell, with Banca Popolare di Milano sliding more than 9 per cent in a day of tumult for Italian assets after the country’s populist government agreed a budget with bigger spending plans than expected. BPER Banca fared marginally better, falling 8.3 per cent. The weakness in Italian financials dragged down the FTSE MIB — the benchmark index closed 3.7 per cent lower.
