Italian bond yields spike to 4-year highs as the EU slams its new budget plan

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Italian sovereign debt yields hit fresh multi-year highs Friday morning, as investors grow cautious over lending to the embattled government after it unveiled new budget plans.

Ten-year and 30-year bond yields — yields have an inverse relationship to a bond’s price — hit their highest levels since early 2014, according to Reuters, just hours after the European Union warned of rule breaches in Italy’s draft budget.

The interest rate on the 10-year benchmark bond rose to 3.7410 percent by 9:00 a.m. London time after finishing Thursday at 3.673 percent. Shares on Milan’s FTSE MIB slid 0.9 percent in early trade after steep losses in the previous session.

Investors have shown concerns over Italy’s 2019 budget, which was officially sent to the EU this week for analysis. The anti-establishment and partly right-wing government in Italy plans to increase public spending in the country, sticking with campaign pledges before the general election in March this year.

There are fears that the fiscal plan will derail the reduction of the country’s debt pile — which is the second largest in the euro zone, totaling 2.3 trillion euros ($2.6 trillion). Italy’s prime minister has defended its free-spending budget this week, after officials in Brussels criticized the plans and labelled it an unprecedented breach of the EU’s budgetary rules.

—Reuters and CNBC’s Silvia Amaro contributed to this article.

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