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LGT Navigator: Italian yields depress Europe's stock markets

October 10, 2018

In view of the tensions between Rome and Brussels, the sell-off of Italian government bonds is continuing, driving yields on ten-year securities to over 3.7% – the highest level in the past four-and-a-half-years. The spread to comparable German government bonds thus widened to 312 basis points, or to a five-and-a-half-year high. Rising interest rates on capital markets continue to cause nervousness on stock markets and yesterday pushed the German stocks benchmark Dax to its lowest level since the beginning of April.

The ECB's cautious bias toward an interest rate turnaround, despite the announcement to end its billion-dollar bond purchase program probably at the end of this year, weakened the euro significantly. The ECB maintained its key interest rate at a record low and remained extremely cautious in its communication. At the same time, the Bank of Japan also left its key interest rates unchanged and even lowered its inflation expectations.

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