Btp the defeat of the crows of the rating
The double warning arrived in the last few days from S&P e Moody’s he signaled that the next few weeks could be delicate for the Italian public debt. The analysts of Goldman Sachs they went even further by inviting customers to sell BTPs and buy Spanish Bonos. A concert of crows that reminded many of the terrible summer of 2011.
For the moment, however, those who fear (or hope) for a revival of that distant script can rest assured. The spread travels around 189 points and shows no signs of nervousness. Far from it. On 25 September, the day of the elections which marked the victory of the centre-right, it was at 240 points.
Signs of caution but certainly not alarm have come from today’s BTP offer
The emission had a high signal value. The first time after the chorus of pessimism from investment banks and rating agencies. The operation proved to be a success. No crisis of confidence since demand has largely exceeded availability Rates have risen but this shouldn’t come as a surprise. The cost of debt is rising around the world after the vigorous tightening imposed by central banks.
In detail, 10-year BTPs were assigned for 5 billion (over 6.6 billion the request) with gross yield up 29 points at 4.42%. The Treasury then assigned 5-year BTPs for 2.5 billion, against a request for almost 4 billion. Yield up 18 basis points to 3.77%. In addition, 7-year CcTeus were assigned for 1.5 billion (2.6 billion the request) with a gross yield up 148 basis points to 4.45%.
The situation is under control
He sees no warning signs Antonio Cesarano, chief global strategist of Intermonte which speaks of temporary risk factors. At these yield levels, he recommends buying BTPs, betting on the fact that the rate cut will bring good capital gains.
Of course, exams never end.
The first critical moment for the BTP will come on Tuesday with the publication of the April data on inflation in the euro area. If the price run shouldn’t show a clear sign of slowdownthe hawks who currently lead the ECB, could obtain not only another fifty basis point rise in rates, but also the cancellation of the bond buyback program of the ordinary Asset Purchase Program (APP).
This means that as early as July, when they expire over twenty-six billion euros of bonds in the belly of the central bank, there will be a first strong liquidity drain. Christine Lagarde, in the event of still very high inflation, would have little reason to oppose a stop on reinvestment starting from June. Conversely, if core inflation were to move away decisively from the +5.7% in March, the doves could get to go ahead with the APP’s fifteen billion euro reinvestment.
For the BTP, another critical junction is at the end of June
It will be at that time that the last tranche of the loans will expire TLTRO ultra-facilitated conditions. There are 477 billion that must be returned to Frankfurt. The topic appears to be about banks, but as seen with Silicon Valley Bank and Credit Suisse, liquidity and liquidity are existential issues. A minimal sign of stresslike the one manifested two days ago by Banco Santander, alarms the markets and unloads itself on the most fragile areas of the periphery of debt securities.
Besides finance, there is also politics
With the discussion between Rome and Brussels on the resources of the PNRR still far from the compromise that will lead to the disbursement of the June installment. To be honest, the European Union is still stuck with payments in August 2022, therefore two tranches are missing. The government has said it will present the documentation by April, but in the meantime difficulties have emerged in completing the investment plans already under way and in planning future spending. “For the moment, the agencies are signaling that in the event of lower PNRR resources, they will limit the estimates on GDP growth and revise the forecasts on the decrease in debt parameters”, adds Cesarano.
Finally, there is the debate in the United States Congress of the debt relief law. The Republicans have made requests that the White House has already said it wants to reject with its veto, so, barring diplomatic miracles from the Speaker of the House, Republican Kevin McCarthy, things will go on for a long time.
For the financial markets, the impasse always translates into a race for safe-haven assets. This can already be seen in Europe, where the spread between the swap rate and the two-year Bund (Schatz), the first indicator of a shortage of high-quality government bonds, has started to rise again.