But with the election just over a week away some unease has crept into markets, leading to an underperformance of Italian debt and gains for safe-haven German bonds.
Latest polls point to a hung parliament, where no single party or coalition has an outright majority to form a government, with analysts expecting a period of short-term volatility that could weigh on bond and stock markets.
Italy’s 10-year bond yield was up 2 basis points at 2.09 percent. It has risen about 10 bps this week, set for its biggest weekly rise since December, according to Tradeweb data.
That has left the gap between Italian bond yields and those of benchmark euro zone issuer Germany at around 140 bps, its widest since January.
Still, this gap – a gauge of how investors view relative country risks – is not far from where it stood in early February at around 126 bps — which was the tightest in over a year.
“If I just observe bond yield spreads for now, they have compressed, which suggests there is confidence relative to the outcome of the Italian election,” said J Patrick Bradley, senior vice president, investment research at Brandywine Global.
“That is surprising given the uncertainty of the outcome.”
The cost of insuring exposure to Italian sovereign debt hit the highest in more than five weeks. Italy’s 5-year credit default swaps rose by 1 basis point from Thursday’s close to 105 bps, according to data from IHS Markit.
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