Citi Eye The Potential For Tighter GGB Spreads, Particularly Vs. Other Peripherals

Citi note that “the recent run of EGB rating activity might increase the focus on Friday’s review of Greece’s rating by Fitch.”

• “The 21 May election result and the fast-declining debt/GDP has strengthened the case for Greek upgrades, in our view, and Greece is now the only sovereign in EMU-11 where our published rating forecasts see scope for upgrades over the next 6-9 months.”
• “However, the timing of any rating change is uncertain. No change in rating/outlook this week is likely to keep 10-Year GGB-Bund spread anchored around 140bp in the near term.”
• “However, a change in the outlook to positive could tighten the spread to 130bp. Further, a one-notch upgrade would take Greece to BBB- (IG territory) and could tighten the spread to 115-120bp.”
• “Net, the optionality seems to favour GGBs in the near term, especially vs. BTPs where recent tightening has more than compensated for the April-May widening vs. equities or PGBs where retail support might be fading from record levels.”