Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

Italian capital markets are en fuego (or whetever ‘on fire’ is in Italian) following, as we detailed earlier, Italy’s new finance minister, Tria, gave a strong endorsement of the euro in comments over the weekend, prompting UBS to suggest that Italy’s disagreements with the EU seem more likely to focus on immigration than on economics.

10Y Italy yields are down 30bps today along – this is the biggest daily decline since July 2012…

Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

Italian 2Y Yields are down a stunning 63bps on the day…

Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

Italian bonds and stocks surged while helping the Euro rise to session higher highs, after Tria told the Corriere della Sera newspaper over the weekend that there was “no discussion” of any proposal to leave the common currency and that the government would also block any market conditions that would “push toward an exit” (he would naturally say that having seen the recent rout in Italian bonds).

Tria’s supportive comments have sent fears of Quitaly lower…

Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

The BTPs that Italy’s FinMin bought are now back in the money…

Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

“This is the one of the first references on not letting the fiscal plan getting out of hand, and that the government will not let the BTP-bund spread get to the same wide level as back in 2011-2012,” Danske Bank’s Arne Lohmann Rasmussen told clients. “We expect to see some stabilization in the BTP-bund spread.”

Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

And as Italian bond yields plunge, so bank stocks soar…

Italian Bond Yields Plunge Most In 6 Years, Banks Soar As Tria Endorses Euro

So Italy is ‘fixed’ and all is well in Europe?

Not everyone is buying it… Santander GCB rates strategist Luca Jellinek posited that much of the move may have been due to short positions being squeezed out. “There were a lot of shorts in Italy,” he said in emailed comments. This rally is “way too much.”
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