BTP: Goldman Sachs says short. And Moody’s (re)shakes spectrum junk
Goldman Sachs once again draw attention to the BTPs a few days after the satisfaction expressed by Prime Minister Giorgia Meloni on the trend of Italian government bonds and the spread.
Sometimes they come back, some might comment, recalling the repeated alerts that the analysts of the American banking giant have launched on various occasions on Italy, on its debt, on the future of the BTP-Bund spread.
But the negative news about Italy doesn’t see ‘only’ Goldman Sachs as the protagonist.
“Italy Stands Out to Moody’s as Only Country Risking Junk Status“: is the title of a Bloomberg article that has just been published.
Translated: “For Moody’s, Italy is the only country that risks a “junk” rating. Rating, that is, junk.
And even this warning is not the first, given that the American rating agency had already spoken of the threat of a downgrade of the Italian debt rating to junk, noting the importance of implementing the PNRR: a very topical question, given that doubts continue to mount about the implementation of the reforms by the Meloni government.
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Goldman Sachs: short the BTP against the Bonos
Starting with yet another Goldman Sachs slap, the Wall Street giant’s advice to Italy leaves no room for doubt:
“Shortate 10-year BTP against the Bonos”, or Spanish government bonds.
Spain better than Italy, therefore.
A forecast for the 10-year BTP-Bund spread is also communicated. According to Goldman Sachs, the spread will go up to 235 basis points by the end of 2023.
The US giant motivates its view with the ECB factor, the European central bank led by Christine Lagarde, estimating a more aggressive monetary tightening starting from the month of June, after the one expected at the end of the next meeting of the Eurotower Governing Council on 4 May.
But the ECB’s interest rate policy isn’t the only reason why Goldman Sachs advises investors to go short, therefore bet lowversus the BTPs versus the Bonos.
Obviously there is also the effect of Quantitative Tightening, i.e. the program with which Lagarde & Co. are already deflating the pro-Italy lifesaver that saved the BTPs from debt anxiety in all these years, in spite of the monstrous public debt.
A Quantitative Tigthening that should speed up the pace starting in June.
From the series: not just no more BTP purchases with the PPA program. The ECB will also begin to get rid of the BTPs (and other euro area government bonds), which have clogged its balance sheet in recent years.
And there is the focus on the PNRR, with the management of European funds by the Meloni government which remains under special observation, and the many doubts that surround it which could “begin to weigh on growth prospects at a national level”.
On the other hand, the implementation of the PNRR has made everyone agree on the driving effect it would have on theexpansion of Italy’s GDP.
According to Goldman Sachs, Spain would benefit from the better GDP growth expectations, while without the crutch represented by the efficient implementation of the PNRR, Italy would risk seeing its economy’s expansion outlook crippled.
It must be said that the alerts signed by Goldman Sachs on the Made in Italy debt have been launched several times in recent years, even before the fall of the Draghi government, and in view of the political elections that should have been held initially this year.
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The fall of the Draghi government and the victory of the Brothers of Italy in the elections had subsequently led Goldman Sachs to warn Giorgia Meloni directly, with an unequivocal message. That is to say: “For the good of Italy and the BTP, respect the Draghi agenda’.
The same advice was also given by several economists questioned by the newspaper The Republic nell‘article with a more than clear title:
The investment banks give victory to Meloni: “But if he abandons the Draghi agenda, there will be trouble”signed by Sara Bennewitz.
Moody’s: Italy is the only country with a Baa3 rating to risk junk
Not just a little attention was also launched on the BTPs by the Moody’s rating agency, which in the past had already highlighted the risk that the assessment of Italy’s public debt would be rejected to junk.
Pending the announcement of Italy’s rating, scheduled for May 19th, Moody’s has published an analysis of how various countries affected by junk ratings have managed their ratings over the past thirty years. public accounts.
In this analysis, Italy stands out precisely as candidate for downgrade to junk.
The agency, reports the Bloomberg article, did not give information on how much the country risks a junk rejection but its analysts, among which the names of Kelvin Dalrymple e Scott Phillipsthey wrote as follows:
“Italy is currently the only country with a Baa3 rated sovereign debt to file a negative outlook”.
And, again Moody’s: “weak growth and higher financing costs could further weaken Italy’s fiscal position“, therefore its public finances.
The fact is that, according to analysts, the risks facing Italy have increased and concern the implementation of the PNRR, i.e. the implementation of those structural reforms that the country should have already implemented in past decades, and which is finally presented as a historic opportunity with loans and aid of European Union.
The Moody’s alert – explains Bloomberg in its article – recalls how the positive phase that BTPs have experienced this year could “derail”.
Bloomberg reminds that the 10-year BTP-Bund spread it travels around 187 basis points, significantly lower than the 250 basis points at the end of 2022.
But its descent, in the medium to long term, as well as its permanence around these levels, is anything but obvious.
Above all, this is the message, if Italy doesn’t start getting serious about the PNRRthe implementation of which had started smoothly and efficiently during the previous government of Mario Draghi.
It is worth mentioning that at the moment 10-year BTP rates hover around 4.35%slowing down from the levels above 4.6% tested in March.