Our base case is that monetary tightening by the ECB results in a manageable rise in Italy’s government bond yields. We think it would take 10-year yields rising to 5% or more to bring debt sustainability into question. However, there is no guarantee that markets will remain calm as interest rates rise, so we think there is a strong case for the Bank to leave the door open to re-starting QE to keep spreads down.
Drop-In (10 February, 11:30 GMT): The Riksbank’s dovish stance looks increasingly untenable in a world of policy tightening, but how far will it go to embrace the hawkishness of its peers? David Oxley and Jonas Goltermann will be online to discuss the Swedish monetary policy outlook following the latest statement this Thursday. Registration details.
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