Aviva’s exposure to Italian sovereign debt worries investors as Italy bond yields soar beyond 7%
Aviva’s share price took a battering today, dropping 5.5%, as Italy’s debt interest payments soared into bailout territory.
Italian 10 year bond yields – effectively the rate of interest the Italian government pays on IOUs – soared to 7.43%, way past the psychologically dangerous 7% territory.
The yields are now at the same levels at which Portugal, Ireland and Greece needed a bailout. Aviva holds more than £7bn in Italian bonds.
A haircut – or loss on Italian bonds – equivalent to the 50% being talked about on Greece would have a devastating effect on the UK’s top general insurer.
Italy is the third largest debtor in the world, behind Japan and America, with debts of 1.7trillion euros.
However, despite the alarming rise on bond yields, insurers still believe a default by Italy remains an unlikely ‘tail risk’.
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