The surge in the vote for an anti-immigration party in Sweden had little effect on sovereign debt markets, with the focus remaining on Italy’s new populist government as it prepares to unveil its firsts budget next month.
The yield on Sweden’s 10-year bond traded at 0.56%, little changed from Friday and before Sunday’s election that saw the vote share of the anti-immigration Sweden Democrats (SD) party swell to 18% from around 13%. Both of the country’s major political blocs have said they won’t share power with the SDs.
The cost of borrowing for Italy, whose populist government was recently elected and has been in a war of words with the European Commission over budget plans ever since, eased slightly as a key minister appeared to dial down the rhetoric. “The focus will definitely stay on Italy for the rest of the month”, ahead of its budget in the first week of October, said Ryan McGrath, head of fixed income at Cantor Fitzgerald. The implied cost for Italy to borrow for 10 years eased to 2.94% from 2.97% last week. The Irish 10-year bond was little changed, at 0.88%.
“The rhetoric is more in line to what Europe would want to hear,” Mr McGrath said of comments made by Italian finance minister Giovanni Tria.
It makes no sense to seek €2bn or €3bn of extra deficit if we then have to pay €3bn to €4bn more due to higher yields
- on government bonds, Mr Tria said on the sidelines of an economic conference.
He said that all cabinet members were “fully aware of that.” Addressing investors and company executives at the event on the shores of Lake Como, Mr Tria said that the government plans to boost economic growth to as much as 1.6%. It plans to “halve the gap with the euro region” on growth “as soon as next year,” he said.
The EU demands that Italy maintain its budget deficit under 3%, but also requires the country to cut spending this year and next to reduce its debt pile. UniCredit’s Erik Nielsen said that markets had “got obsessed” with the prospect of a un-financeable budget deficit in Italy. “Once the budget is presented, “chances are that foreign investors will realise that they overestimated the fiscal risk,” he said.