The country’s 10-year yield rose almost eight basis points to 2.806 percent on Monday morning before falling to 2.72 percent – down by just one basis point on the day. Bonds began to find more stable ground following a heavy selloff, with two- and five-year yields also slightly lower on the day. But despite this respite, analysts have warned the pain for Italy’s bond market is far from over.
Michael Hewson, chief markets analyst at CMC Markets, said: “Italy has a huge debt burden and the government had hoped for better growth.
“At some point this year, Italy will flare up as problem once more.”
Chris Scicluna, head of economic research at Daiwa Capital Markets, said: “The scepticism that we saw last year about the wisdom of the new government’s fiscal plans is being revived by the economic data.
“There is a decent chance that we will see another quarter of negative growth in Q1.”
On Friday, it was revealed manufacturing activity in Italy had contracted for the fourth successive month in January.
The gloomy figures from the Purchasing Managers’ Index (PMI) revealed factory activity weakened to 47.8 points in January, from 49.2 the month before.
The decline marks its sharpest fall since 2013, pointing to ongoing weakness for Rome just one day after it was announced Italy had entered recession territory.
This increasing poor data has continued to accelerate concern about a further deterioration in public finances, fuelling speculation further budget measures could be introduced.
Italy spent much of 2018 involved in a bitter spat with finance chiefs from the European Union over its controversial budget plans.
The country’s government finally passed their monetary agreement at the end of December, averting a major showdown with the EU after being accused of breaching spending commitments.
Rome proposed a debt target of 2.4 percent of GDP but the EU would only allow 2.04 percent for 2019, falling to 1.8 percent next year and 1.5 percent in 2021.