Italian Bonds Emerge as Europe’s Weak Spot on Carry Trade Unwind

Italy's sovereign bonds have been heavily sold since the start of the Iran war, emerging as the weakest link in the euro area as investors unwind a popular carry/trade. The unwind is elevating risk premia and could materially widen Italian spreads versus German Bunds, increasing euro-area financial-market stress and pressuring local funding conditions.

Analysis

Italy's sovereign bonds have been heavily sold since the start of the Iran war, emerging as the weakest link in the euro area as investors unwind a popular carry/trade. The unwind is elevating risk premia and could materially widen Italian spreads versus German Bunds, increasing euro-area financial-market stress and pressuring local funding conditions.