On Wednesday Italy will be conducting a 10-yr BTP auction that is sure to make waves one way or another.

Italian 10-Yr BTP Auction (Wednesday, May 30, at 5:45 a.m. ET)

Importance:

• Italian debt has sold off sharply in recent weeks amid mounting concerns about Italy's political situation and the specter of a populist government coming to power.
• Italy now appears on track for a snap election in August, which some think will be a referendum on EU membership.
• Weak demand at the auction (after rates have already spiked) will fuel concerns that a further backup in rates will be seen.  Weak demand for 10-yr Italian debt likely to feed ongoing flight-to-safety in 10-yr German bund and continued weakness in the euro and debt of peripheral eurozone countries.
• Further drop in yield in the benchmark German bund is apt to drive continued interest-rate differential trades that pressure rates in the U.S. Treasury market lower

What's Affected?

• iShares MSCI Italy Capped (EWI)
   
• Regional ETFs
  • Vanguard FTSE Europe (VGK)
  • iShares Europe (IEV)
  • SPDR S&P Euro STOXX 50 ETF (FEZ)
  • Wisdom tree Europe Hedged Equity ETF (HEDJ)
  • iShares MSCI Germany (EWG)
  • iShares MSCI France (EWQ)
  • iShares MSCI Spain Capped (EWP)
     
• Currencies
  • EUR/USD
  • EUR/CHF
  • EUR/JPY
  • GBP/USD
  • USD/CHF
     
• Sovereign bonds
   
• S&P futures
   
• Index ETFs
  • SPDR S&P 500 ETF (SPY)
  • PowerShares QQQ ETF (QQQ)
  • iShares Russell 2000 (IWM)
  • SPDR Dow Jones Industrial Average (DIA)