31.03.202613:54:11UTC+00Italy’s Bond Yields Drop, but Inflation Fears Drive Sharp Monthly Climb

Italy’s 10-year BTP yield eased to 3.9%, pulling back from its highest level in more than two years, as investors shifted their focus to growth risks stemming from the energy shock linked to the Middle East conflict. Despite the decline, yields were on track to end March more than 60 basis points higher, marking one of the sharpest monthly increases among European sovereign bonds amid a broad-based surge in inflation.

A spike in energy costs pushed Eurozone inflation up to 2.5%, above the ECB’s 2% target and the highest reading in over a year. Italy’s EU-harmonized inflation rate remained unchanged at 1.5%, but the wider upward trend in prices prompted markets to scrap expectations for rate cuts, with investors now pricing in at least two ECB rate hikes by 2026. ECB policymaker François Villeroy de Galhau reiterated the central bank’s determination to rein in inflation, while stressing that it was still too early to discuss the precise timing of future rate moves.