Italy’s Prime Minister Giuseppe Conte resigned on Tuesday, ushering in a phase of political instability that could lead either a new government or to elections this spring, as noted by macro analyst Holger Zschaeptiz.
Bond markets, however, showed no signs of stress on Tuesday. The spread between the 10-year Italian and German government bond yields fell by five basis points to 1.18%, extending Monday’s drop from 1.259%.
According to Zschaeptiz, the European Central Bank’s backstop is keeping bond markets calm amid the political uncertainty in Italy. A continued drop in the yield differential could bode well for EUR/USD.