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German Bund Yields Edge off Highs, Italian Politics in Focus

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MILAN, Feb 8 Reuters Euro zone core bonds yields were almost flat on Tuesday, edging off Monday highs, as Italys borrowing costs held near recent lows as Mario Draghi faces a last day of consultations with political parties.

Asian stock markets rose on Tuesday after a recordsetting day on Wall Street but, in a sign that positive sentiment may run out in European trading, European stocks futures were down. Oil also hit 13month highs, helped by rising optimism about a return in fuel demand.

Reflation is set to remain the theme in rates markets, ING analysts wrote in a note.

However, Italy was still in focus with its political developments.

Antiestablishment 5Star Movement said on Monday it would consult members on whether it should back a government led by Draghi, increasing the uncertainty over the makeup of his coalition.

It is unclear whether Draghi will wait until the results of the 5Star vote before reporting back to President Sergio Mattarella.

Italys 10year bond yield was almost flat at 0.517 , near almost onemonth lows hit on Friday. Its spread over benchmark 10year Bund yields was around 95 bps , close to its tightest levels in five years.

Germanys 10year bond yield was flat on the day at 0.444 , after hitting fivemonth highs on Monday at 0.412.

From the supply side, Germany will sell a new Bundei due in April 2033.

Spain mandated on Monday banks for a new 50year bond to be issued soon, possibly on Tuesday.

This might continue to pose some selling…

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