S&P Global Ratings has just presented its outlook on the BTP-Bund spread and on 10-year BTP rates.
According to the rating agency, the Italy-Germany spread will settle at the end of 2024 at 200 basis points, against rates on 10-year BTPs estimated at 3.2%. This is what emerges from the Economic Outlook 2023 signed by its analysts.
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S&P’s outlook shows that the credit will go to the Italian banks, which will appear more solid and which, as stated yesterday during the event “2023 Italy Annual Press Conference” organized by Standard & Poor’s, have entered a solid situation that “probably they had never had in their history.”
Italian banks pass and thus pass the test of the rating agency made in the USA. With positive effects expected on the spread and on rates, therefore on the cost of servicing the Made in Italy debt.
Like this Mirko Sannadirector-financial services di S&P Global Ratings:
“There are different situations from bank to bank, but compared to 6-7 years ago, there are no more critical issues in the sense of individual problems of the banks”.
Not for nothing, in this context, and in spite of the challenges arising from the world macroeconomic front, the agency underlined that it has a stable outlook on Italian banksforecasting a solid year 2022 in terms of earnings, unless the banks themselves decided during the fourth quarter to provide to an increase in provisions.
A scenario that is actually very probable, if we consider that, to increase the provisions to deal with possible losses on loans (NPLs, non-performing loans) – which could increase if the hypothesis of recession were confirmed – were the Wall Street giants of caliber of JP Morgan & Co e Goldman Sachs .
But even if Italian banks were to set aside more NPL reserves, the rating agency’s confidence in the sector would not be affected.
The reason? The effect on their profitability – to be exact on their interest margins (NII) of the rate hikes by the ECB (precisely those rate hikes that various members of the Meloni government – but not only them – are attacking).
The strange equation that many do not see
We could present the following equation:
Italy is resisting a roundup of rate hikes launched by Lagarde & Co: a roundup of rises which however has positive effects, as it is increasing and will continue to increase the profitability of Italian banks; this profitability will keep the BTP-Bund spread and the rates on BTPs under control until the end of 2024, thanks to the confidence in Italy. At least according to the economists at Standard & Poor’s.
So basically, the strange equation would prove that Italy would be wrong to blame the European Central Bank led by Christine Lagarde (which, among other things, as the statements coming from Eurotower exponents in the last few hours are demonstrating, is denying the rumors about the indiscretions released two days ago by Bloomberg).
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Spread BTP-Bund remains observed special
Can BTP buyers rest assured?
Right the BTP-Bund spread is destined to remain under special observationespecially after the latest slides, which yesterday brought it around 171 basis points.
Expectations of a more dovish ECB drove a sustained decline the ten-year BTP rates, capitulated up to 3.71% in yesterday’s session.
It should be remembered that the decline in the spread and rates on BTPs was triggered by the diffusion of some rumors reported by the Bloomberg agency, according to which Christine Lagarde’s ECB is ready to launch, starting from the March meeting, monetary tightening of less than 50 basis points.
Speculations that however, the ECB is trying to counteract this.
Yesterday, speaking from Davos where it is ongoing il World Economic Forumthe French member of the Eurotower Governing Council Francois Villeroy de Galhau he promptly alerted everyone to the rumors according to which the Eurotower is preparing, in its fight against inflation – starting in March – to raise rates in the euro area in a more contained way.
“Let me recall the words Lagarde uttered in the last press conference in December – Villeroy said – ‘We should expect to raise interest rates at the rate of 50 basis points over a period of time.’ Well, those words still apply today.”.
Position confirmed also from the holland falcontoday and again from Davos, by Klaas Knot, who remarked that the European Central Bank led by Christine Lagarde “it won’t stop after another 50 basis point rate hike, that’s for sure.”
Today rates and the BTP-Bund spread rose slightly.
About the ECBS&P Global Ratings announced that it estimates a central bank terminal rate of 3%, adding however that, “unlike many, we do not expect a rate cut (in the euro area) before the end of 2024”.
Never before has Christine Lagarde’s ECB been awaited by the markets.
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