The cost the Italian government is paying to borrowing is soaring higher today, particularly for short-term maturities.
We’ve commented regularly that the rise in short-term yields on Spanish bonds has been a dangerous sign, as investors lose faith in the European Central Bank’s two three-year LTROs—attempts to mitigate short-term borrowing costs for troubled countries by pumping cheap money into the European banking system.
Looks like the same loss of faith is happening in Italy, too.
The Italian 10-year yield is already 6.5 per cent, up 15 bps today, making very long-term borrowing very pricey. This sharp rise in shorter-term yields will make it difficult for the Italian government to fund itself even in the medium-term.
Check out Italian 2-year yields, up 42 basis points and topping 5 per cent today for the first time since January: