Italy’s Target2 debt falls in October from previous month’s record high By Reuters

MILAN (Reuters) – Italy’s liabilities towards other euro zone central banks fell compared with their record high in the previous month, central bank data showed on Tuesday, although it might prove only a temporary reversal of the upwards trend.

Data published by the Bank of Italy showed Italy’s Target2 debt fell to 669.45 billion euros ($668.71 billion) at the end of October from its September record high of 714.93 billion euros. It had hit new record highs for five months in a row from May to September.

Italian net bond issuances could be a reason behind the improved position in October, according to Luca Mezzomo, head of macroeconomic analysis at Intesa Sanpaolo (OTC:)’s Research and Studies Department.

In September they were negative to the tune of around 22 billion euros while in October they turned positive for roughly 23 billion.

But Mezzomo cautioned that it could be too early to call a reversal of the data trend of the past few months.

“I would be cautious in speaking of a turnaround – the September figures were probably negatively affected by the Italian political elections, some technical issues and negative net issuances,” the economist said.

“But Target2 debt could rise again in November,” he said.

The European Central Bank’s funding to Italian banks ticked up to 431.34 billion in October from 430.98 billion euros the previous month, the data showed.

A country’s Target2 position is monitored as a sign of potential financial stress and imbalances within the euro zone.

Target2 debt could rise, for example, due to capital outflows. It also reflects an increased reliance of domestic banks on ECB funding.

Italy started publishing its Target2 debt position in September 1997.

($1 = 1.0011 euros)