Italian Politics Monitor: The Heat Is On

Published 12/05/2018, 07:41 AM

Pressure is mounting on the Italian government to resolve its budget feud with the European Commission, with the economy already contracting in Q3 and shifting public sentiment.

Although the sky for a real budget compromise has brightened as of late, we still see a relatively high likelihood of further confrontation and a formal EDP launched possibly in January 2019.

As long as the stand-off with the EU remains unresolved, we expected Italian yields to remain choppy. However, unless the confrontation intensifies, we see scope for further performance in Italian government bonds near-term.

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