Tension in Italian politics have.......>

BOND SUMMARY: Tension in Italian politics have eased as markets warm to the fact

that fresh elections could be held in next few months and markets have pared

some of the sharp flight-to-quality move seen Tuesday. 

- 2-yr BTPs have seen the sharpest moves, falling 77.5bp to 1.991%, while the

10-yr Bund/BTP spread has tightened by 18.4bp to 272bps. Latest news from Italy

is that Lega's Salvini says a coalition government with 5SM is not possible at

the moment and that there should be fresh elections.

- Core EGBs are also seen weighed by higher than expected German May regional

flash inflation, better than expected rise in German retail sales and fall in

German unemployment rate. While Spain flash inflation also surprised to the

upside. Meanwhile Gilts are little changed on the day.

- US Tsy are sharply off there overnight highs weighed by rise in Japan retail

sales and move lower in Bunds. 10-yr Tsy yield is 2.835 vs low of 2.759%.

- Long-end rate futures have stabilised after an early sell-off. Blue contracts

are down 11.5-13 ticks on the Eurodollar strip, and 3-3.5 on the Euribor strip.

Both strips are bear steepening. Short Sterling strip completely flat.