The knee-jerk reaction to the Italian...>

EGB SUMMARY: The knee-jerk reaction to the Italian election result in EGB space

was fairly predictable. The uncertainty it creates led to a 5bp decline of the

10Y Bund yield to 0.65% but then everything reversed. 

- The 10bp widening in the Bund-BTP spread has been pulled into a 6bp rise and

the Bund yield is back at 0.63%. The best performing market is Spain on account

of many long positions in Italy (that were cut) were hedged with shorts in

Spain. Bund-Bonos 10Y was last 2bp tighter at 87.3bp.

- Some analysts are emphasising that the SPD member vote together with Macron's

pro-Europe energy creates solid base for Europe diminishing the influence of the

Italian vote.

- Eurozone Markit PMI for services and composite were lower than flash readings

but the elevated height of the index allowed EGBs to make little reaction to the

news. The composite is now 57.1, instead of the 57.5 in the flash.

- In Italy, the Lega's Salvini has said that he will honour his commitment to

the Right-wing alliance, helping to limit fears of an anti-establishment

coalition with M5S.