Sept 26 (Reuters) - Italian bonds slightly underperformed their peers on Monday, pushing the Italian-German yield spread out by 2 basis points (bps) after the centre-right coalition won a clear majority in both houses of parliament in Italy's general elections, as expected.
Investors had already priced in such a scenario, meaning markets initially showed limited rection. More clarity about the new government's policy might be needed before any significant change in investors' stance.
They will closely watch the choice of finance minister and anticipate a government could possibly be formed by the end of October.
“A pro-Europe, fiscally-cautious personality looking a likely choice for now. We do not expect an immediate push for a major fiscal relaxation , but we do see risks over the medium term that the right’s policy agenda will clash with EU objectives,” Citi analysts said.
Giorgia Meloni looks set to become Italy's first woman prime minister at the head of its most right-wing government since World War Two.
Central banks, including the European Central Bank, are expected to keep raising interest rates to tackle inflation, which kept euro zone government bonds under pressure.
The yield on Italy's benchmark 10-year bond hit its highest since October 2013 at 4.425%, causing the spread to German 10-year Bunds to widen 1.5 bps to 230 bps. (Reporting by Stefano Rebaudo, editing by Amanda Cooper) ;))