Italian budget politics has been the....>

EGB SUMMARY: Italian budget politics has been the dominant theme in EGBs this

morning. Deputy PM Matteo Salvini is taking aim at the EU's budget rules, which

he has said are outdated. He further stated that the deficit limits can be

breached. Although this is partly an attempt to boost support ahead of the

European Parliamentary elections, the rhetoric will be unsettling for Brussels,

which only last year was locked in dispute with Rome over the government's

budget plans.

- BTPs have sold off sharply, led by the short end. The 2-year benchmark yield

is up ~10bps and the 2s30s spread has also narrowed by ~10bp. 

- The rise in global economic and geopolitical risks, as well as the troubling

budget commentary from Rome, is supporting core EGBs. Bund yields are 2-5bps

lower with the long-end of the curve outperforming. Current yield levels: 2-year

-0.664%, 5-year -0.522%, 10-year -0.110%, 30-year 0.5195%.

- The French OAT curve has similarly flattened with the 2s30s spread narrowing

3bp.

- Euribor futures are broadly 0.5-3.0 ticks higher.