/EGBS: Citi On Tomorrow’s Headline Scheduled Ratings Updates

Ahead of Friday’s headline scheduled ratings updates for Italy (by S&P), France (by Moody’s) and Greece (by S&P) Citi note the following:

• “For France and Italy, this follows their draft budget release targeting large budget deficits for 2024 despite limited fiscal space. As a result, the interest rate on their debt is no longer consistent with a declining debt/GDP trajectory. Our base case is for no change in ratings for Italy or France, but a change in outlook cannot be ruled out.”
• “BTPs are likely to be more sensitive to any adverse rating action than OATs given their proximity to the sub-IG threshold and current investor sensitivity to economic fundamentals, with a 5-10bp widening possible on an outlook change.”
• “In contrast, an unchanged outlook is likely to elicit a relatively small BTP relief tightening (around 5bp) given the still-present risk from Fitch/Moody’s reviews on 10/17 November.”
• “Overall, this tilts risk-reward against BTP longs despite already large widening.”
• “In contrast, for Greece, with a BB+ positive rating, our published forecasts see a one-notch upgrade from S&P to IG in the near-term given the current GDP/prudent fiscal trajectory, which is likely to persist after recent elections. If it happens this week, it will be Greece’s first investment grade rating from major rating agencies and would then require just one more upgrade from either Fitch or Moody’s to make GGBs eligible for some major IG bond indices. This keeps us relatively constructive on GGBs on beta vs peers.”