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ITALY: BTP/Bunds Hits 140bp As EU Election Uncertainty Weighs

ITALY
  • The 10-year BTP/Bund spread has widened towards 140bps as a result of the heightened political uncertainty and unexpected election announcement in France, putting the spread at the widest level seen since late April (+5.5bp on the day). Other peripheral spreads are widening in sympathy, with cash curves bear steepening.
  • In contrast with France, however, domestic political stability in Italy (the election is unlikely to trigger any substantial changes in IT government policy) may help contain further widening in BTP spreads, but their high-beta nature nonetheless keeps them sensitive to broader moves in risk assets.
  • BTP futures registered fresh year-to-date lows (115.39) before stabilising, currently -65 ticks at 115.57. The bearish move ends the corrective phase seen between May 29 & Jun 5. Fresh weakness would expose the 1.236 projection of the May 16-24-27 price swing (114.88).
  • The EU-level implications of the results for Italian PM Meloni are not yet clear: Von der Leyen’s EPP is looking to work with the socialists and liberals, avoiding Meloni's ECR group. However, if they can't get a majority together then VdL might need Meloni's backing, potentially giving the Italian PM a bit more influence in Brussels.
     
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