The twin threats of Italian populist....>

EGB SUMMARY: The twin threats of Italian populist economic policy and fresh

Spanish elections battered EMU periphery debt as markets headed into the UK and

US holiday weekend. Spreads are soaring and 10Y BTPs have moved decisively

through the 2.40% mark, with 10Y Bunds rallying 7.4bps to 0.3978%.

- 10Y BTP spreads touched 4.5-year highs at 217.1bps, up 24 bps, though have

come back a little to 210.1bps. The weekly close could prove decisive: a move

beyond 213bps would put BTP spreads at levels unseen outside the 2011-13

Eurozone crisis. This also sets things up interestingly for Monday`s CTZ and

BTPei auctions for E2-3bln.

- Spanish yields are relatively well-contained by comparison, with the 10-year

yield at 1.497% still 13bps below the 2018 high. Nonetheless this is 10.6bps

higher on the day, and the spread vs Italy narrowed from 105.8bps in Spain`s

favour to 101.4bps, reflecting rising risks of early Spanish elections.

- The rate futures strip flattened sharply. Long end Euribor is flying with

Green and Blue contracts up 6.5 ticks, but Reds selling off 0.5-1.0 on ECB

sources telling Reuters that they would likely stay the course on tightening.