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Selloff in Italian bonds likely to continue, analysts say

Barclays has scrapped its recommendations for investors to take a long position on the Italy’s five-year bonds versus Germany’s, following a selloff amid a wave of risk aversion.

“With the market mood remaining fragile and an unlikely imminent de-escalation in Turkey-US political tensions, a recovery in sentiment and spreads in the very near term seems unlikely,” Barclays strategists Giuseppe Maraffino and Cagdas Aksu wrote in a note to clients, per Bloomberg.

Meanwhile, Goldman Sachs is reviewing its forecast for 10-year Bund yield to reach 1% by the end of the year. The German notes have benefited from Italian political risk ahead of the release of the Italian populist coalition government’s first spending plan, with the 10-year yield trading around 0.3% on Friday.

In addition to Italian political risk, uncertainty regarding Turkey’s economic situation has contributed to investor risk aversion more broadly.

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