Italy: Bonds under modest pressure - BBH

Analysts at BBH note that as Italy's new prime minister prepares to lay out the government's agenda and ahead of the confidence vote in the Senate, Italian bonds have come under modest pressure.  

Key Quotes

“The 10-year yield is up nine basis points to almost 2.60%.  Note that in the futures market, the Italian bond held an important retracement in the bounce since last Tuesday panic.  The two-year yield is up 11 bp to 78 bp.  Indicative prices point to easier credit default prices.  The 196 bp quote compare with 221 bp yesterday and a peak of almost 270 bp last week.  As recently as mid-May, the five-year CDS stood at less than 100 bp.”

“The government seems to have three priorities:  1) Immigration, 2) a new transfer payment that may be being misconstrued as a universal basic income and is really an unemployment compensation program tweaked for Italy's circumstances where entry into the labor force is difficult, and 3) a flat tax that is really a two-tiered system for all income at rates 15% and 20%.”