1036 GMT – The prospect of Italian government bond yields rising disproportionately represents a potential key risk for the euro in 2024, Francesco Pesole, FX strategist at ING Research, says in a note. Future discussions on phasing out reinvestments under the Pandemic Emergency Purchase Programme could cause Italian bond yields to rise and their spread over German bond yields to widen, he says. “We currently identify Italian bond spreads as one key risk for the euro next year, even if it is not our base case that they will sustainably widen to concerning levels,” he says. The 10-year Italian BTP-German Bund yield spreads last trades at around 173bps, according to Tradeweb, comfortably below the 200bps level considered by many as a pain threshold. (emese.bartha@wsj.com)

Good Quality Bonds Have Place in Mixed Portfolios as Rate Cuts Loom Next Year 

1025 GMT – The higher interest-rate base gives bonds with good credit ratings a new justification in a mixed portfolio, as they now offer an adequate return and also act as a portfolio stabilizer, says Ernst Konrad, managing partner and lead portfolio manager at Eyb & Wallwitz. “Interest rate cuts from the middle of next year will lead to a further decline in yields on government and investment grade bonds, which is why we are sticking to the duration build-up that has already taken place,” he says in a note. A renewed rise in core inflation is a key risk for bonds in 2024, however, he says. (emese.bartha@wsj.com)

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