Italian spreads nosedive as economic recovery picks up pace

Italian spreads nosedive as economic recovery picks up pace


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The spread between the Italian and the German 10-year bond yields closed to 1,64% on Monday, that is, the lowest since October 2016.

The spread rose beyond 2% earlier this year, amidst fears of a populist government coming to office.

Italy has the biggest public debt in Europe in absolute numbers and the second biggest debt-to-GDP ratio in the Eurozone after Greece.

However, the economy is improving. According to the national statistical agency (ISTAT), the Italian economy has created an additional 916,000 jobs since 2013. As the Italian economy reaches pre-crisis employment levels the welfare costs are being reduced and Rome can expect a reduced public deficit. Italy currently has a 40.68 million people workforce.

In parallel, the banking system is beginning to address the issue of Non-Performing Loans (NPLs), reducing the burden by 10% or 18bn.

The overall picture suggests that the Italian recovery is becoming more credible, which affects the cost of public borrowing.

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