Italy’s borrowing costs have surged back to financial crisis levels and the country is now looking like a proper member of the eurozone’s fringe, according to Ambrose Evans-Pritchard.The yield on Italy’s 10-year bond is now at 4.86% and, combined with weakening monetary supply data, Italy now looks destined for a downturn similar to the rest of the fringe in the next 9 months.
Investors seem to be getting out of Italy and into the safety of German debt.
Neil Mellor, currency strategist at the Bank of New York Mellon, said big institutional investors have been pulling funds out of Italy and rotating into German debt on a large scale. “Our flow data shows that the trend has been just as concerted out of Italian debt as it has been out of Irish or Greek debt. Italy should be able to weather 2011 in good shape but the government’s debt dynamics are very poor,” he said.
Faith in the fringe is waning for sure, but certainly some of this has to do with investors moving out of sovereign debt, and bonds in general, and into equities.
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