Conflicting Talk Surrounding Credit Ratings

On top of the post-U.S. CPI spread compression in BTPs, we note the following BTP-relevant areas of discussion that have crossed today:

• Early in the European morning Citi noted that “while there have been investor concerns ahead of the Moody’s review of Italy’s Baa3 negative on 19 May, we don’t expect any change to the rating/outlook. Instead, we see a greater risk from Fitch’s review of Italy’s BBB stable rating this Friday, as the main reasoning behind Fitch’s downgrade of France two weeks ago also seems true for Italy. We also note that Fitch is most sensitive among the main rating agencies towards the debt burden. Net, we see the risk that Fitch puts Italy’s BBB rating on a negative outlook on Friday. This could mean an increased sensitivity of BTPs to downside triggers, especially as BTPs still don’t look cheap vs broader iBoxx credit indices.”
• Since then, our policy team published an interview with the Italian Treasury’s Director General of Public Debt, Davide Iacovoni. He provided a more upbeat assessment, telling MNI that the Italian Treasury is “quite confident” ahead of sovereign debt rating updates over the coming weeks after a “very constructive dialogue” with ratings agencies and as the economy grows more quickly than expected (interview available here). Elsewhere, he noted that Italy will launch at least one more new BTP Valore retail bond after the summer, though its characteristics may differ from those set for June (interview available here).
• The 10-Year BFP/Bund spread operates around the 190bp mark, after threatening to breach 195bp yesterday.