Citi Look At BTP Dynamics

Citi write “the recent reversal in BTP spread widening felt due as decoupling from risk assets started to look extended and Reuters story on Monday suggesting a potential delay in PEPP QT discussion by the ECB offered a cause for relief.”

• “This is perhaps aided by a relatively small BTP auction today, partly thanks to the large BTP Valore subscription and disbursement of an NGEU tranche.”
• “However, any further tightening might be used by hedge funds as an opportunity to position for rating risks over the next month starting with S&P next week, where the recent deterioration in debt trajectory might have implications for the rating outlook.”
• “Today’s auction should also help clear some of the remaining short base.”
• “Over the medium-term, we continue to see headwinds from slowing growth, increasing deficit/debt ratios and impending PEPP QT that still looks likely for early-2024 and would add to the heavy global net supply next year.”