Italian bonds rally after report that EU said to work on crisis purchases

LONDON, March 18 (Reuters) – Italian bond prices rallied sharply on Wednesday, with yields reversing an earlier spike, following a report that EU leaders are working on a plan that may lead to crisis purchases of the country’s bonds by the ECB.

Analysts said the rally was due to a Bloomberg News report that European Union leaders are working a plan that may pave the way for crisis purchases by the European Central Bank.

Italy’s 10-year bond yield fell to as low as 2.18% after swinging above 3% earlier in the session for the first time since February 2019. It was last down 14 basis points at 2.25%.

The gap between the country’s 10-year bond yield and Germany’s equivalent – effectively the risk premium Italy pays to investors – fell to 248 basis points after rising to 320 earlier, its highest since November 2018.

“This (story) is what’s caused the rally in Italian bonds and frankly that’s where we’re heading,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

“The implication is that Italy will lose market access and need the ECB and OMT to keep going,” he said, referring to the crisis fighting measures the Outright Monetary Transactions (OMT) programme.

Earlier in the day the Bank of Italy bought Italian bonds as the system of euro zone central banks intervened to ensure orderly conditions in bond markets. (Reporting by Yoruk Bahceli and Dhara Ranasinghe)

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