Italy’s BTP Yield Jumps on Ceasefire, Oil Risks

Italy’s 10-year BTP yield rose eight basis points to 3.79% on Thursday, trying to recover from a 27-basis-point plunge the previous day. The rebound came as escalating doubts over the US-Iran ceasefire sent oil prices surging, stoking inflation concerns, especially after Israel’s deadliest Lebanon strikes yet, which killed hundreds and provoked Iranian retaliation threats. Tehran ruled out further US talks, while the Strait of Hormuz blockade kept pressure on the fragile truce. US President Donald Trump intensified tensions by vowing to keep forces near Iran until a “real agreement” is reached. Markets reacted by pricing in tighter ECB policy, with at least two rate hikes now expected by end-2026.

Italy’s 10-year BTP yield plunged by 30 basis points to 3.68% after oil and European gas prices fell sharply in the wake of a US-Iran ceasefire agreement. The deal, which suspends the US-Israel military campaign in return for Iran reopening the Strait of Hormuz, has sparked cautious optimism for a temporary easing of Middle East tensions, though underlying conflicts remain unresolved. The reduction in geopolitical risk led investors to dial back expectations for European Central Bank (ECB) rate hikes, cutting one projected increase from their 2026 forecasts. Markets now expect only two rate rises this year, a downward revision from earlier estimates.

Italy’s 10-year BTP yield climbed toward 4% following the extended Easter break, reflecting mounting pressure on European bonds due to escalating tensions in the Middle East. Investors have adopted a cautious "wait-and-see" approach as they await US President Donald Trump’s deadline for Iran to reopen the Strait of Hormuz and agree to a ceasefire, or face severe consequences. Trump’s warning of potential massive strikes on Iranian infrastructure has driven energy prices upward, prompting markets to price in three ECB rate hikes this year. Speaking to the Wall Street Journal, ECB policymaker Pierre Wunsch suggested the bank may need to raise rates multiple times, starting this month, if the energy fallout from the Middle East war persists.