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In view of analysts at Danske Bank, given that the ECB is not expected to announce any major changes to monetary policy at the upcoming policy meeting today, they expect the market will remain range-bound as seen in the past couple of months.

Key Quotes

“Furthermore, a clash between the EU and Italian government seems less likely as the Italian budget deficit is expected to fall between 2.0% and 2.5% for 2019. We expect this will be acceptable for the EU commission even though it would still likely stress the need for reform of the Italian economy.”

“The 5Y segment on the Italian curve is still significantly mispriced, as shown in the top chart on the right, where we plot the Barbell 2-5-10Y on the Italian curve relative to the outright level for the 5Y Italian government bond yield.”

“The effect of operation twist is still visible in the German curve as the old 30Y bonds are still expensive relative to the current 10Y and current 30Y bonds, as shown by the shape of the ASW-spread curve as well as the level of the ASW-spread between 10Y and 30Y.”

“All in all, we expect 10Y Bund yields will continue to trade in the 30-50bp range for the next three months.”

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