The BTP-Bund spread no longer causes anxiety neither to investors who look to Italy nor to the Meloni government.
Today the differential between BTP and 10-year Bund rates is stable, around 157 basis points, fluctuating close to the values of the last few days, compared to the rates on 10-year BTPs that are recording a slight increase to 3.93%.
It should be remembered that lo spread BTP-Bund, YTD (i.e. since the beginning of the year) has marked a decline of 10 basis points, while the 10-year BTP rates, which had breached the 4% threshold at the end of 2023, have risen from the beginning of 2024 to today from approximately 3.71% to 3.93%.
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BTP-Bund spread: no shock due to increase in yields
Don’t worry, though, at least for now. Further reassurances on the stability of the BTP-Bund spread have arrived in the last few hours.
Il Wall Street Journal (WSJ) reported today the outlook on the BTP-Bund spread drawn up by Citi Research analysts and, also, the view on the euro area government bond market signed by the experts at Societe Generale.
The good news, for the Eurozone government bond marketis that analysts do not expect any major shock, in a situation in which, despite stable spreads, government bond yields have nevertheless risen.
It was also certified the ECB’s economic bulletin published yesterday, which showed that “government bond yields followed trends in line with risk-free rates, which increased slightly.”
It also emerged from the bulletin that “the spreads on government bonds (therefore also including the BTP-Bund spread) they remained stable overall.”
While on the one hand, in fact, market speculation on the imminent arrival of rate cuts by Christine Lagarde’s ECB has diminished – as was also the case with bets on rate cuts by Jerome Powell’s Fed – thus causing the rise in the yields of BTPs, other euro area bonds and Treasuries, on the other hand the confirmation by the ECB itself of the road map to follow to end the PEPP plan (also known as the other QE), did not cause any significant shocks, as Frankfurt itself first made clear in its report.
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Citi pro BTP, cuts outlook spread for the end of 2024
Not at all worried about the dynamics of the BTP-Bund spread Citi Research analystswho have actually cut the outlook on the 10-year BTP-Bund spread expected for the end of 2024 at 130 basis points.
Presenting the outlook was rates strategist Aman Bansal, who noted that, even if the downward break of the 150 basis points threshold appears difficult to materialise, “the situation could change soon, in the wake of the easing of the pressures that they come from the supply side”.
The Bansal strategist also cited other reasons that support his view of a BTP-Bund spread down to 130 basis points, in addition to the weakening of the frequency of issues of new government bonds which, as a rule, is quite high at the beginning of each year.
Other pro-BTP factors reported are the prospect that the government bonds of peripheral countries will do better, and the fact that, despite the limitations that President Christine Lagarde promptly sets on every occasion, the European Central Bank should still “start cutting rates by June.”
A possible key risk for BTPs, at this stage, according to Citi, could arise in the event that any significant risk aversion triggered by concerns about the banking system.
A comment in favor of BTPs and euro area government bonds also came from Societe Generale Research who, in a note also reported by the Wall Street Journal, wrote that he believes that the effect of the endgame foreseen for the pandemic QE PEPP (“Pandemic Emergency Purchase Programme”) will be slight, in a market where the risks politicians confirm themselves relatively low.
“Spreads remain close to their lowest levels tested in a year,” we read in the note from the SocGen research division.
Analysts have pointed out that the differentials “they don’t seem too far from fair value”.
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