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BTP/Bund Spreads Over 10bps Wider, Spill Over From France Dominates

BTP

The 10-year BTP/Bund spread moves above 150bps for the first time since early April, currently around 10bps wider on the day.

  • French political uncertainty/speculation continues to dominate discussions, with BTPs falling afoul of their high beta status.
  • This is despite the Italian EU election results pointing to domestic political stability and little likelihood of substantial changes in IT government policy.
  • Although 10-year BTP yields are some ~90bps off 2023 highs (which were a result of growing ratings downgrade speculation), the move to year-to-date highs will bring familiar discussions on debt sustainability to the fore.
  • Should yields stabilise at current levels, it may prompt downward revisions to Italian budget balance estimates, particularly with only ~56% of Italy’s 2024 cash target having been raised via bond issuance thus far this year.
  • On the other hand, the sharp moves higher may provide more attractive entry points for familiar carry-based strategies, if some stabilisation is forthcoming.
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