10-Year BTP/Bund Spread 15bp Of Recent Wides

The uptick in equities/dovish Fedspeak combination has promoted compression for BTPs today, with the 10-Year spread vs. Bunds back below 195bp, ~15bp off in recent intraday wides.

• The initial stabilisation in bond markets after the recent round of pressure has helped in recent days.
• A quick reminder that Italian fiscal worry, broader bond market pressure and ECB QT speculation pressured BTP/Bund spreads multi-month wides.
• In terms of domestic news flow, Fitch noted that the Meloni government “faces sizeable political pressure to deliver more of its electoral pledges, which weighs on prospects for greater consolidation and reform to reduce fiscal risks. The potential for continuation of recent markedly higher yields on Italian debt to further increase debt servicing costs, and risks to the deficit path from final application of the Superbonus scheme and from policy slippage, also create some uncertainty around compliance with EU fiscal rules.”
• The ratings agency went on to flag that a “key uncertainty is how far absorption of NGEU funds will accelerate after underperforming plans by around 30% this year. Fitch anticipates some greater focus on channelling NGEU funds through the private sector will contribute to improved delivery.”
• Fitch also slightly increased their assessment of Italy’s trend growth, which is a “key ratings weakness.”