Italian Companies Face Higher Borrowing Costs Since Elections

The yield on Italian sovereign bonds has risen significantly since Italy’s elections in March, with 10-year spreads against German bunds reaching 300 basis points at the beginning of October. But sovereign debt is not alone in having become more expensive: This chart shows that the funding costs of the largest Italian corporations have also increased since the election. Corporate bond yields rose by an average of 90 basis points between March and October 2018. These increases could be a warning of a slowdown in economic growth, as fears about the new government’s policies are already affecting Italian companies. The rise in funding costs for banks and corporations could lead to lower lending, investment, and employment.

This PIIE Chart was adapted from Olivier Blanchard, Álvaro Leandro, Silvia Merler, and Jeromin Zettelmeyer’s Policy Brief, Impact of Italy’s Draft Budget on Growth and Fiscal Solvency.