With Italian bond yields surging higher, analysts said Italy is at the brink of being unable to afford to borrow in the public markets.


Less than two weeks after European leaders unveiled an agreement that was designed to bolster confidence in the region, the yield on Italy's 10-year debt drew close to the 7% mark, a line in the sand of both practical and psychological importance to the market.


Psychologically, 7% has become a beacon due to the fact that Greece, Portugal and Ireland each sought bailouts soon after their debt reached these levels. While analysts said it is too simplistic to say that Italy will be forced to ask for support if its 10-year debt yields 7%, they said the recent selloff is taking the country to the tipping point.


'I don't know if 7% is the upper limit, or if it's 6.9% or 7.25%, but I do know [Italy] can't go on for very long having these kinds of bond yields,' said Gabriel Stein, director at Lombard Street Research in London.

伦敦研究公司Lombard Street Research主管斯坦因(Gabriel Stein)说,我不知道上限是7%,还是6.9%或7.25%,但我确实知道,意大利在国债收益率如此之高的情况下,是坚持不了太长时间的。

In a practical sense, yields at these levels could force traders to post more collateral when borrowing against Italian bonds, because they are perceived as more risky. That potentially makes Italian bonds less attractive for banks, which historically have been among the biggest buyers of European government debt. This creates a vicious circle, in which higher yields lead to more selling, which in turn scares off buyers.


And with 1.9 trillion in debt ($2.62 trillion) and 200 billion of debt coming due next year, Italy can ill afford to see rates remain at these high levels.


Analysts said European officials will be hard-pressed to reverse the selling without a concrete plan to support Italy. Such a plan would need to be in the magnitude of the European Central Bank committing unlimited resources to guaranteeing member countries' debt, they said.

分析人士说,若没有一个支持意大利的具体计划,欧洲官员将很难扭转抛售意大利国债的局面。他们说,此类计划应由欧洲央行(European Central Bank)制定,承诺拨付大量资源,为成员国债务提供担保。

Yields on Italian debt have been rising steadily, with prices falling, for weeks, but Monday's selloff was particularly steep, according to Tradeweb data. The yield on the 10-year note jumped to 6.56% from 6.31% on Friday. That is up from 5.91% two weeks ago and 5.5% at the end of September. Bond yields move inversely to prices.


The picture is even worse for Italy judged by the Italian bond due in March 2022. The yield on that issue hit 6.88% Monday, up from 5.29% when it was sold at the end of August.


Sohail Malik, lead portfolio manager for special situations credit at European Credit Management, estimated Italy is paying about 3.42% on bonds coming due next year. Mr. Malik estimated that if that debt was all rolled over into new 10-year debt at 7%, it would create an extra 43 billion of interest costs over the life of the debt.

投资管理公司欧洲信贷管理公司(European Credit Management)特殊情况信贷首席投资组合经理马利克(Sohail Malik)估计,意大利为将于明年到期的国债支付约3.42%的利息。马利克还估计,如果这批国债全部被续期为收益率为7%的10年期新国债,那么在新国债到期前将额外增加430亿欧元的利息成本。

'Imagine doing that for two to three years of maturities at the same level,' Mr. Malik said. 'Unsustainable.'


Market participants said the selling pressure came from long-term investors, such as pension funds, banks and insurers. They said Italian investors, who traditionally have been big buyers of Italian government debt, have stepped back from the market, contributing to the vacuum in which prices have fallen.


Monday's surge in bond yields widened the gap between Italian and German 10-year bond yields to a euro-zone era record of 4.75 percentage points, up from 4.48 percentage points Friday.


In some ways, the widening of that spread has caused a vicious selling cycle thanks to rules that govern the use of government debt as collateral for borrowing money, otherwise known as repurchase, or repo, agreements.


Analysts point to the rules set by LCH.Clearnet Group Ltd., the main clearinghouse for repurchase agreements. LCH.Clearnet requires higher collateral for repo trades involving government bonds that yield 4.5% more than a basket of triple-A-rated European sovereign bonds for five consecutive days. Market watchers said Italy is on the cusp of falling into that riskier bucket.

分析人士指的是主要回购协议清算所LCH.Clearnet Group Ltd.制定的规定。按照LCH.Clearnet的要求,如果某国债的收益率连续五个交易日比一篮子评级为AAA的欧洲主权债券收益率高出4.5%,那么进行回购交易时就需要提高作为抵押品的该国债的额度。市场观察人士说,意大利的国债正处于这个更高风险类别的边缘。

LCH.Clearnet didn't respond to requests for comment.


Should the collateral requirements be triggered, it would make Italian debt less attractive for investors.


Tom Lauricella / Matt Wirz / Stephen L. Bernard

Tom Lauricella / Matt Wirz / Stephen L. Bernard