Italian spreads are in sharply as.......>

EGB SUMMARY: Italian spreads are in sharply as markets take stock of positive

news on the 2019 budget, and helped by weakness in German bonds.

- 2-Yr BTP spreads are 13.2bps narrower to German equivalents at 127.0bps, while

10-Yr spreads are in 11.0bps at 242.1bps, on optimism of a market-friendly

budget deal to be reached after reports of Fin Min Tria seeking a budget deficit

of 1.6% of GDP or lower. The main players (Tria, PM Conte and Deputy PMs)

reportedly meeting to discuss the budget Monday.

- The rest of the EGB periphery is also trading tighter to Germany, with 10-Yr

Spanish spreads in 1.1bps at 102.4bps, Portugal in 2.2bps at 138.3bps, and

Greece in 6.4bps at 357.5bps.

- Bunds have moved steadily weaker after a fairly strong start, with the Dec18

future now off 23 ticks at 158.94 (day's high was 159.29). Curve is a little

steeper though the belly is the main underperformer, 5-Yr yield up 1.7bps at

-0.1112% vs 2-Yr up 0.9bps and 10-Yr up 1.3bps.

- Euribor strip is a little weaker, most contracts down between 0.5-1.0 ticks.

- EMU final Aug inflation data did not have an impact, with HICP unrevised.