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EGB SUMMARY: Core EGBs are weaker and BTPs stronger as a reasonably
market-favourable Italian budget agreement this week looks increasingly likely.
- The Dec 18 Bund future is down 24 ticks at 158.08, having traded in a range of
157.91-158.21, with 10-Yr weakest on the curve with yield up 1.8bps at 0.527%.
- Italian 2-Yr yield is down 6.8bps at 0.824%, 10-Yr is down 6.1bps at 2.888% -
with spread vs Bunds down 8bps at 235.9bps.
- Signs of budget compromise in the coalition government are buoying Italian
bonds. A report from Il Messaggero that Fin Min Tria is willing to run a deficit
as high as 2.0% of GDP (vs his stated 1.6% preference), while another report
from La Stampa cited 5-Star`s Di Maio backtracking from a 2.8% of GDP deficit.
- Rest of periphery tightening as well, 10-Yr Spain vs Bunds down 2bps at
99.4bps, Portugal down 2.2bps at 136.6bps, and Greece in down 1.5bps at
- Euribor is weaker from Dec19 onward, with focus on the 2021-22 contracts (off
2.5-3.0 ticks) as more ECB tightening priced in.
- ECB speakers today include Praet (0810GMT) and Coeure (1600GMT).