Italian 10 YR is Poppin today

Italian bond yields....

Italian yields have pushed higher again today after a few days of respite at the end of last week. Italy, the third largest economy in the Eurozone, is becoming a bit of a litmus test regarding sentiment towards Europe's debt-riddled periphery. Two weeks ago we saw the spread between Italian 10-year and German 10 -year bonds reach record highs. It has since narrowed after Greece passed its austerity vote last week, but looks like problems in Italy are starting to come to the surface yet again.

There are a few reasons for this:
1, Eurozone-wide concerns: This week the focus is back on the difficulty of resolving this sovereign debt crisis. Credit rating agency Standard & Poor's threw a spanner in the works when it said that the "voluntary rollover" plan being discussed with European banks would constitute a default event.

2, Domestic concerns: Poor economic data from Italy. The PMI Services sector survey collapsed in June to 47.4, a figure below 50 indicates contraction in the industry. This is the lowest level since September 2009 and is below the long-term average of 51.0. This suggests that Italian growth may have moderated sharply last month since the PMI has a good correlation with GDP, as you can see in the chart below.

Italian 10yr just tapped 5% after pulling back to low 4.80s last week. There was a few week data points that came out this morning regarding EU retail sale, which may account for some of this but Italy is now the focus of the EU crisis epicenter...this could get interesting, definitly worth watching this week.