10Y Spread to Bunds Briefly Reaches Tightest In Almost 2 Years

The 10-year BTP/Bund spread trades 0.9bps tighter today at 153.2bps, after briefly reaching its tightest level since late-March 2022. The firmness in European equities alongside has aided the intraday outperformance vs Bunds thus far.

• BTP yields are -2.5 to -4.5bps lower today, while futures are +21. A bearish corrective cycle remains in play, with the initial firm resistance defined at 119.23, the Jan 12 high. A reversal higher and a break of this level would highlight a base.
• A reminder that periphery spreads have seen a constructive start of the year, aided by strong demand at Italian and Spanish syndications earlier in the month.
• Through September to November '23, speculation r.e. whether the ECB would end PEPP reinvestments before December '24 drove BTP spread widening, alongside sovereign rating concerns from S&P and Moody's.
• However, the ECB's decision to instead taper PEPP reinvestments from H2 '24 (before ending them at the end of the year), alongside a positive ratings decision from Moody's on Nov 17th (where Italy's rating was confirmed at Baa3 and its outlook upgraded from negative to stable) enabled spreads to continue moving away from widest levels of over 200bps in October '23.