How Exposed to Italy Are Passive Bond Funds?

Italy has the largest government bond market in the eurozone and the third largest in the world after the United States and Japan

Jose Garcia-Zarate 22 October, 2018 | 12:16PM

Italy politics European Union Five Star movement Europe Brexit

Italy’s budgetary plans for the 2019 fiscal year have unnerved financial markets. The Lega/Five Star Movement governing coalition, which came into power with the promise of a comprehensive programme of extra public expenditure, has approved a substantial upward revision to the 2019 budget deficit target to 2.4% of gross domestic product: three times higher than the 0.8% figure agreed by the previous administration with the European Commission. The deficit targets for 2020 and 2021 are 2.1% and 1.9%, respectively.

To say that EU authorities are displeased would be an understatement. Yields on Italian bonds, which had been on a rising trend since the installation of the populist administration, have shot up further, sparking fears that an open confrontation between Rome and her eurozone partners could be the beginning of another systemic crisis for the euro.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
iShares International High Yield Bd ETF49.62 USD-0.68
Vanguard Total International Bond ETF57.88 USD0.27

About Author

Jose Garcia-Zarate

Jose Garcia-Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe

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