Investors come back to Italian bonds on hopes that risk rumours are groundless.

The highest yield investment securities in Eurozone are too good for some investors to lose this opportunity despite the fact that another round of tensions between Italy and the European Union is expected this week.

M&G Investments bets on short-term Italian debt again, while BlueBay Asset Management LLP holds the long position for securities known as BTP. The yield growth of almost 100% this year is still attractive for retail investors to come back to the market. This type of market players usually hold bonds till the expiration time, the head of Italian debt agency Davide Iacovoni says.

All that happens despite the ongoing confrontation with the European Union which considers Rome’s budget targets as too optimistic. Although Italy has enough time till November 27 to present a revised vision of the budget spending plan, the government made clear that it won’t succumb the pressure from Brussels.

The yield gap narrowing between Italy and Germany suggests that the market ignores the risk of populists’ policy in Rome to destabilize the situation. And one of the main reasons is that similar concerns were already played out in other countries recently - France and Greece - with insignificant long-term consequences. Previous episodes of worries about the European Union disintegration were usually resolved at the last moment thanks to a compromise and that could lift the market expectations for the same outcome of the current debate.

Although the signs of cessation with EU are absent so far, that does not justify such a high yield, BlueBay notes.

BlueBay Asset Management LLP
Source: Timewise Jobs

“That was rather tough and sometimes painful turmoil but we still think that the risk for Italy to leave the European Union was overestimated by the market, BlueBay head investment strategist David Reilly said on Bloomberg TV last week.
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