10-year BTP/Bund Spread At Tightest Levels Since Mar '22

The 10-year BTP/Bund spread is 2.0bps tighter at 147.6bps at typing, operating at the tightest levels since late-March 2022. The spread has compressed almost 7bps this week alone.

• This calendar year has generally been constructive for periphery spreads. We point to a number of factors that have aided the narrowing, which has come in spite of pull-backs in rate cut expectations across developed markets:
• Firstly, demand European periphery debt has been extremely strong in the first 7-weeks of this year. In particular, we point to the 7/30-year BTPs and 10/30-year Oblis issued via syndication in 2024. The E137bln book value for the 10-year 3.25% Apr-34 Obli was a record level.
• Second, the Eurostoxx 50 cash index currently trades at multi-decade highs (highest since Q1 2001), helping risk-sensitive spreads to tighten.
• Finally, EU Excessive Debt Procedure rules have been made more flexible following recent Triolgue talks with the ECB and Parliament last week, following pressure from high-debt states such as Italy (see here from our Policy Team).
• Looking ahead, UniCredit point to an "uncertain economic outlook and the fact that the ECB will start reducing its PEPP portfolio from 2H24" as risks to the outlook for periphery debt.