BTP: Underperform Amid Return Of BTP Supply, Retracement Of Post-Powell Reaction

10-year EGB spreads to Bunds are wider today, alongside a broader retracement of the dovish reaction to Chair Powell’s speech on Friday. BTPs underperform, with the 10-year BTP/Bund spread ~4bps wider at 139bps. 

• The return of BTP supply after a month-long hiatus has likely contributed to the idiosyncratic BTP weakness. Alongside today’s BTP Short Term supply (which was digested smoothly), Italy returns on Thursday to sell E4.0-4.5bln of the new 3.00% Oct-29 BTP and E2.75-3.25bln of the 3.85% Feb-35 BTP (and a floating rate bond).
• Spread widening comes despite a 1.9bp tightening in EUR HY spreads today.
• BTP futures are 74 ticks lower at 118.79, though the medium-term trend condition remains bullish for now. Next support is the 50-day EMA at 118.32, a breach of which would highlight a bearish threat and a potential reversal.
• The Italian cash curve has bear steepened, with 10 to 30-year yields around 8bps higher today, helping the 2s10s curve steepen 3.5bps to 75.1bps (vs YTD steeps of 78.2bps). 
• Elsewhere, the MNI Policy Team wrote last week that Italy is likely to face significant challenges to maintain recent income tax reductions, given well-document fiscal concerns.