The yields spread between Italy and German 10-year bonds have narrowed to 200 bps, the lowest since 9 April

Italy 10-year yields

The big topic for European bonds this week will be the recovery fund proposal, and the latest development in the early morning today has a bit more of a positive spin to it.

Austrian finance minister, Gernot Bluemel, is reported to have softened his position on the recovery fund proposal, by saying that a compromise between grants and loans would be possible - in terms of disbursing the aid to member states.

"What we don't want is that it will be only grants, and that this is the start of debt mutualisation. There will always be some give and take in negotiations."

I reckon that perhaps is helping to add to the more positive risk appetite today as well.

Just be reminded that Austria is part of the "frugals", which came up with their own counter-proposal over the weekend, calling for the funds to be disbursed via loans and not grants (as opposed to the Franco-German proposal).

Despite the remarks above, I would still argue that there remains a massive gap to bridge between member states to even get close to an agreement on this matter. If anything else, be prepared for more can kicking down the road.