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Positions in Europe: Long Germany (EWG)

 

In the European Chart of the Day below we highlight all-time wides in the spread between 10YR German Bund yields and Italy’s 10YR bond. The factors weighing on this spread include:

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  1. Ongoing sovereign debt contagion across the region
  2. The ability of Berlusconi’s government to finalize a €47 Billion austerity package next month
  3. Italian bank worries as the second round of European Stress Tests are due on July 13th(an estimated 15-22 of 95 banks are rumored to fail; Unicredit stock was halted today after -6.5% drop)
  4. Talk today that Berlusconi’s Finance Minister Guido Tremonti is caught up in allegations of graft that may call for him to step aside

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To the last point, it’s been reported that Berlusconi called a closed-door meeting with Tremonti today to discuss allegations that Marco Milanese, a lawmaker accused of corruption who until nine days ago was Tremonti’s political advisor, had been paying €8,500 a month on rent for an apartment used by Tremonti in Rome. According to The Economist, Marco Milanese is wanted on suspicion of having supplied confidential official information to a businessman in return for “significant cash payments and other gifts such as expensive watches, jewels, luxury cars (Ferrari and Bentley) and holidays abroad”.

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While Tremonti publically stated he’d change his arrangements as of this evening, the news compounds recent negative Italian headlines.

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Matthew Hedrick

Analyst

Italian Risk Rising! - italy. yields