Debt tile for Italy? The effect of the ECB rates at 4.50% and the end of the PEPP

Rates still stuck at 4.50% and reduction in PEPP reinvestments from June 2024: what does this mean for Italian debt? On the bond front, the yields of the 10-year BTP, as in the rest of Europe and the USA, are clearly decreasing and the 10-year Italian government bond is traveling below the 4% threshold.
The bond market is pricing in the end of rate hikes.
However, it must be remembered that the current level of the cost of money, even if unchanged, is still very high and could remain stuck at this threshold for months.
Italy has already ended up in the sights of analysts when it predicted a deficit greater than the estimates in the Nadef, rekindling all doubts about the stability of public accounts, excessive spending, and faltering growth.
The ECB's interest rates at 4.50% can however have a negative impact.
Is Italy, with its debt burden, at risk in the face of such high rates and the reduction in bond purchases by the ECB from June 2024? The closure of the PEPP could also affect the stability of the Italian bond market.
read also ECB meeting today, rates stuck at 4.5%.
The PEPP will be closed at the end of 2024.
ECB rates at 4.50% and end of PEPP: what to expect on Italy's debt? The scenario that is emerging after the December meeting of the ECB which maintained interest rates at 4.50% is not at all free of pitfalls, even if spreads and yields are decreasing in the hope of a no longer aggressive monetary policy.
Italian debt remains in the foreground.
First of all because it is high and increased in September with 2,844 billion euros in the latest Bank of Italy survey, adding 4 billion from the previous month.
Then, it must be considered that the ECB will close the government debt purchase program at the end of 2024, starting to limit bond purchases from next June at a rate of 7.5 billion euros per month.
Italian bonds are perceived as the most fragile in the face of potential changes in the so-called Quantitative Tightening (central bank policy aimed at reducing liquidity also through the limitation of purchases of sovereign bonds), since they were among the main beneficiaries of the bond purchase programs assets.
The gross issuance of sovereign bonds in 2023, according to September indications, would be approximately 333 billion euros for Italy and 415 billion euros for 2024.
In essence, with the ECB retreating in purchases, Italy will need to attract buyers.
read also Who wins and who loses with ECB rates at 4.50% A simulation by the Public Accounts Observatory has highlighted that with a 1 percentage point increase in interest rates on government bonds, persistent and uniform along the maturity curve , interest expenditure would grow by 3 billion in the following 12 months (and by 39.4 billion in the following 5 years).
Italy's annual debt servicing cost will be around 75 billion euros this year, compared to 57.3 billion euros in 2020, ratings firm Scope said.
It could even reach 100 billion by 2026.
Even with a stop to the rise in rates in the December ECB decision, Italian debt is not safe.
The bond market remains under observation.
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