Italy Government Bond 5Y

A growing divergence in European government bond yields is raising a hidden risk for financial markets, with borrowing costs in major Western European economies climbing toward levels last seen nearly two decades ago, KB Securities said. Ten-year government bond yields in major Western European countries have already moved above their 2023 peaks and are approaching their 2007 highs, while the U.S. 10-year Treasury yield, although above 4.8%, remains below its 2023 peak. The more important concern is the widening gap between Western and Southern Europe: yields in France and Germany have risen sharply, while those in Spain and Italy remain below their 2023 peaks and have increased at a more moderate pace. KB Securities attributes the divergence to fiscal positions, with France and Germany expected to run budget deficits of about 5% to 6% of GDP next year, compared with 2% to 3% for Spain and Italy, which keeps the latter within the EU's 3% fiscal-deficit threshold. The divergence echoes the period before the 2011 euro zone sovereign debt crisis, but KB Securities does not see an imminent crisis, noting that the bigger risk could emerge when the economic cycle turns lower, making the next downturn a key test for European markets.