EGB/Gilt: Italian Politics In The Spotlight

European government bonds have started the week on a strong footing with BTPs being the notable exception amid a fresh bout of political instability. Equities have similarly edged higher, while G10 currencies are gaining ground against the dollar.

• Having agreed to form an alliance with the Democratic Party and the +Europe party just last week, the centrist Azione has now pulled out with party head Carlo Calenda starting that "the pieces just didn't fit together". The alliance was formed in an attempt to prevent a more right-wing government coming to power following the September 25 vote.
• BTPs have traded lower with yields up 1-4bp, the curve bear flattening and spreads over bunds widening.
• Bunds opened higher and have held on to the majority of the morning's gains. Cash yields are down 2-5bp with the belly of the curve outperforming.
• OAT yields are now 1-4bp lower on the day.
• Gilts have outperformed EGBs this morning with yields down 4-8bp. Second quarter GDP data will be published on Friday and follow's last week's particulary downbeat economic assessment from the Bank of England.
• France will offer EUR4.6-5.8bn of BTFs later today.
• The European data slate was light this morning with no tier one releases to note.