Markets continued to stabilize further as Italian political turmoil is now a past. Italian 10 year bond yield dropped for another day, by 0.17 so far and is standing at 2.54. German 10 year bund yield, on the other hand, is rising 0.16 and is back above 0.40 at the time of writing. While the spread is still widener than 200, it’s much better than the worse day when it was over 300.
Money markets are back pricing in the chance of an ECB hike next year. This is additionally supported by the stronger than expected inflation reading released last week. Now, markets are pricing in around 50% chance of a hike in June 2019. They are also now fully pricing in a 10 bps hike by September 2019.
