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While speaking in an interview, Societe Generale’s Head of European rates strategy, Ciaran O’Hagan, warned that the new Italian government still poses risks for the country’s bond markets.

Key Highlights:

“New government is still seen to be dangerous for long BTP positions.

There is possibility of more forced selling.

As well as ratings downgrades and capital outflows.

Recommends using rebound to establish new shorts in Italian bonds.

New coalition government takes market back to same situation last week.

Populist parties have started their intention to keep the euro.

But unclear how fast measures will be discussed on euro incompatibility.

Strong chance of early downgrade from Moody’s, probably within weeks.

Too early to expect capital outflows this summer.”