Italian Spread Is in No Man's Land With Budget on Collision Path

Implied volatility on Italy’s 10-year bond futures climbs as the government stands firm on its budget plans, which appears to set it on a direct collision course with the European Union.

Wings should be in focus via call spreads on any limited BTP outperformance driven by conciliatory budget comments and subsequently, outright puts may attract, given concerns over debt sustainability in the medium term. Still, liquidity remains problematic following unprecedented price action seen in May.