The last part of 2021 is showing a gradual widening of the BTP-Bund spread. Yesterday the differential between the Italian 10-year card and the German 10-year benchmark went up to almost 140 bps, on the highest since November 2020. An important contribution to this dynamic of the spread certainly came from above-expected inflation which led operators to expect a less accommodative attitude from the main central banks.
Despite the members ECB have repeatedly reported that a rate hike in 2022 is unlikely, the market continues pricing in a rise of around 15bps. “Of course, given the forward guidance, a rate hike would imply the end of QE and this explains why the recent movement in the spread”, MPS Capital Service experts explain in their Outlook 2022. MPS believes that the action and the The ECB’s communication work should help to keep the spread in the first part of the year around the current values (130bps + or – 10bps). Then, in the second half of the year, upward pressures are expected to increase in light of three factors:
1) risk of lower liquidity linked to a possible early repayment of the TLTROs in June;
2) less support for ECB purchases especially in the second half of the year;
3) repricing of political risk ahead of the political elections of 2023.
In this context, MPS Capital Service believes that the 10-year BTP rate should follow the trend of the Bund rate described above with one variable spread between 130 and 170 bps. From a technical point of view, on the ten-year BTP rate to be monitored on the upside resistance in the area of 1.30% above which space would open towards 1.87%, while on the downside the main support is at 0.86% below which space would open 0.70%.