German bunds slump after Italy’s political woes calm down on formation of new government

The German bunds slumped during European session Thursday after Italy’s political woes calmed down, following the formation of a new government, which weighed on debt prices.

The German 10-year bond yields, which move inversely to its price, jumped nearly 4-1/2 basis points to 0.50 percent, the yield on 30-year note climbed 5 basis points to 1.18 percent and the yield on short-term 2-year traded flat at -0.62 percent by 10:20GMT.

On March 4, Italy's election resulted in stalemate, with no party or bloc winning a majority. The uncertainty had battered Italy's stocks, resulting in a slide of more than 9% in May - the worst month since 2016.

But after Italy's anti-establishment parties 5-Star Movement and the League revived prospects of a coalition, the risk of a second election was removed. The two parties have proposed law professor Giuseppe Conte to be the new prime minister.

Lastly, Praet’s comments certainly suggested that the ECB is not overly concerned (yet) about events in the BTP market. But the soft economic data do suggest that downside risks to the economic outlook have increased. And so, while next week the Governing Council might well indeed judge that the conditions for ending net asset purchases have now broadly been met, a final announcement of its plans of how it intends to bring those purchases to an end to be put off to the July meeting is expected. 

Meanwhile, the German DAX rose 0.07 percent to 12,838.05 by 10:35GMT, while at 10:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 0.24 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

Lastly, FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest