BTPs took a beating today, rising 41 basis points and they are up 73 basis points since yesterday’s bottom. Where next?
Fundamentally, I don’t see how the political situation can improve. Berlusconi and Bersani have no reason to work with each other and Grillo categorically denied he will work with either party. With no party above to build a coalition, it ensures a period of uncertainty and turmoil, which is a recipe for higher yields.
We might see some headlines where politicians sound like they could work together but that is likely an attempt to look pragmatic ahead of another election.
Technically, yields poked above the December highs today. The main levels to watch are the psychological 5% level, but more importantly, 5.07% which is the convergence of the November high and the 38.2% retacement of the drop since July.
If that level breaks, look for another leg down in the euro.
Italian 10 year yields daily
The FT has just published an editorial that basically sums up what comes next.
It is too early to tell what political outcome Italy’s elections will produce. However, the eurozone should brace itself for renewed turbulence
