Italy Joins Sub-Zero Club as Rally in Two-Year Bonds Accelerates

(Bloomberg) -- Italian bonds rallied to send two-year yields below 0% for the first time in over a year, in another sign of growing investor confidence in the nation's outlook.

Europe's bonds have surged over the past couple of months amid a global hunt for returns spurred by slowing inflation and the prospect of policy easing. Italy was one of the last to join in the rally, with investors now betting it will avoid punishment from Brussels over its budget deficit and benefit from further stimulus from the European Central Bank.

“There is hunt for positive yields across the board,” said Pooja Kumra, European rates strategist at Toronto-Dominion Bank. “It seems pretty likely that Italy does avoid excessive deficit procedures so Italian bonds should continue to see support into the July ECB meeting.”

Read More: Italy Cuts 2019 Deficit Goal to 2% in Bid to Avoid EU Procedure

Italian two-year yields dropped for a fifth day, falling as much as 12 basis points to -0.018%. Those on 10-year bonds now yield 1.87%, with the spread over those on their German peers at 222 basis points.

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee

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