Italy’s 10-year government bond yields are projected to average around 5% next year, close to 2012 levels during a dangerous debt crisis. But analysts say more volatility than yields will pose Rome’s biggest challenge in how to manage its debt.

Its total volume for 2022 is estimated at 145% of GDP, which is the second highest percentage in the eurozone after Greece. This compares to 116% of GDP in 2011, a ratio that many considered unsustainable at the time. However, even though the Treasury is due to issue €310-320 billion worth of bonds this year with interest rates at historically high levels, economists are now relatively optimistic about the country’s debt sustainability.

The reason is inflation, which, while it can hurt consumers and savers, is a boon for heavily indebted countries like Italy because it increases income and GDP while reducing current debt proportionately. “In a world where inflation is at 3%, a 5% bond yield is sustainable for Italy because this inflation has a positive effect on the debt-to-GDP ratio,” said Philippe Greub, chief executive of Union Bancaire Privée.

So far this year, Italian government bonds have moved in sync with other eurozone sovereign bonds, and the spread (or spread) over their German counterparts has remained in what some analysts consider a “safe zone” of 2 percentage points, or 200 basis points. points. Analysts say Italy’s real problem is market volatility.

The situation has escalated sharply in response to mixed messages from the ECB about how high it will raise interest rates and when they might fall again. This condition makes it difficult for Italian bond managers to predict the so-called “yield curve”, which shows the yield of bonds with different maturities, from short-term to long-term securities.

The yield curve usually rises steadily as long-term bonds earn more than short-term bonds, but recent factors, especially uneven messaging from the ECB, have made it less predictable. Finally, other countries are facing the same instability problem, but Italy is at the center of its huge outstanding debt of around $2.3 trillion. Euro.