04.03.202612:19:31UTC+00Italian BTP Yields Retreat

Italy’s 10-year BTP yield fell to 3.44% on Wednesday, retreating after a sharp rise earlier in the week driven by fears that the conflict in the Middle East could push inflation higher. Investors took note of reports that Iran had signaled a willingness to discuss terms for ending the war, although Israeli officials have urged Washington to dismiss the overture.

Persistently high energy costs are expected to keep inflationary pressures elevated, reinforcing a hawkish stance at the European Central Bank. February data showed Eurozone annual inflation at 1.9% and core inflation at 2.4%, both above expectations. In Italy, HICP inflation accelerated to 1.6% from 1.0% in January, far exceeding the consensus forecast of 1.1%.

As a result, markets now assign roughly a 40% probability of an ECB rate hike by year-end, a sharp reversal from just a week ago, when similar odds were placed on a rate cut instead.