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Europe Markets

Nov. 2, 2021, 8:25 a.m. EDT

Italian bonds bounce back sharply, narrowing the yield gap over German bunds

By Steve Goldstein

Investors flocked to Italian and other peripheral bonds on Tuesday, narrowing the yield spread over German bunds after a recent widening.

Without any obvious macroeconomic trigger, the yield on the 10-year Italian BTP (XTUP:BX:TMBMKIT-10Y) fell 13 basis points to 1.095%. Spain’s 10-year yield (XTUP:BX:TMBMKES-10Y) also fell, losing 10 basis points to 0.55%.

The yield on Germany’s 10-year bund (XTUP:BX:TMBMKDE-10Y) fell 4 points to -0.14%.

The rally still hasn’t full unwound the widening of the Italian-German bond spread seen after last week’s European Central Bank rate decision. Analysts at Bank of America said the ECB appears too focused on upside inflation risks and relaxed about 2022 supply pressures, based on remarks by ECB President Christine Lagarde.

“Whether the delivery was not great or the market is not yet ready to listen, the pushback did not appear direct or strong enough to the market,” they said.

See: ECB’s Lagarde pushes back against rising interest rate-hike expectations, but markets don’t listen

Of the major regional stock-market indexes, the German DAX (XEX:DX:DAX) gained 0.6%, the French CAC 40 (PAR:FR:PX1) increased 0.2% while the U.K. FTSE 100 (FTSE:UK:UKX) declined 0.6%.

Falling iron-ore prices as China capped steel output hit miners including Rio Tinto (LON:UK:RIO) and BHP (LON:UK:BHP) , weighing on the FTSE.

HelloFresh (ETR:XE:HFG) jumped 15% in Frankfurt after the mealkit maker’s third hike to its revenue outlook this year.

Flutter Entertainment (DUB:IE:FLTR) shares had their worst one-day performance since the early days of the pandemic, losing 7% in Dublin, as the sports-betting group had a number of unfavorable results.

The owner of FanDuel said its operating loss for the year will be weighed down by £15 million from “adverse sports results in October,” and outside the U.S., by around £60 million. A temporary closure in the Netherlands will further hit its profit by £10 million this year and £40 million next year, assuming it restarts in the third quarter of 2022.

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