Italian BTPs have strengthened..........>

EGB SUMMARY: Italian BTPs have strengthened significantly, with the government's

Thursday budget decision being eyed up with cautious optimism.

- The Dec 18 Bund future is up 9 ticks at 157.96, having traded in a fairly

narrow range of 157.89-158.09 today.

- The German curve is a little flatter, with the 2-Yr yield up 0.2bps at

-0.494%, 5-Yr down 0.3bps at -0.033% (absorbing Bobl supply this morning), 10-Yr

down 0.6bps at 0.537%, and 30-Yr down 1.6bps at 1.147%.

- Big focus is on Italy, where 2019 budget projections are due to be released

Thursday. Fin Min Tria said Wednesday the country's 2019 budget will include a

basic income for the poor and allow earlier retirement, meeting demands from the

ruling coalition parties, however he did not reveal the main focus which is the

deficit target.

- Nonetheless, BTP yields maintained their rally, with the 2-Yr yield down

11.5bps at 0.726%, and 10-Yr down 7.2bps at 2.806%.

- 10-Yr BTP spread v Bunds in 6.5bps at 227bps, but fairly muted elsewhere in

the EGB periphery (Spain in 0.8bps, Portugal 0.3bps, Greece 2.0bps).