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EGBS: OAT/Bund Little Changed Following Fitch Outlook Downgrade

EGBS
EurozoneBulletGlobalFixed Income BulletsRegionMarkets

The 10-year OAT/Bund spread is little changed at 77bps following Fitch’s outlook downgrade to “Negative” from “Stable” on Friday.

  • This outlook change was broadly expected. Fitch do not expect the Government to “meet its revised medium-term deficit forecast to bring the deficit below 3% of GDP by 2029”.
  • The move sets the scene for upcoming ratings reviews with Moody’s (Oct 25) and S&P (Nov 29). Moody’s may be most interesting, with its sovereign rating for France (Aa2) one notch above that of Fitch and S&P (potentially increasing the odds of an outright rating downgrade).
  • Belgian paper underperforms after Moody’s outlook downgrade to “Negative”, with the 10-year OLO/Bund spread 1.5bps wider at 61bps. The change reflected the “risk that the next government will be unable to implement measures that would stabilize the government debt burden”.
  • Meanwhile, traditional peripheral spreads outperform, with the 10-year BTP/Bund spread 1.5bps tighter at 128bps at typing.
  • The ECB decision headlines this week’s regional calendar, with a 25bps cut widely expected and essentially fully priced in OIS.
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The 10-year OAT/Bund spread is little changed at 77bps following Fitch’s outlook downgrade to “Negative” from “Stable” on Friday.

  • This outlook change was broadly expected. Fitch do not expect the Government to “meet its revised medium-term deficit forecast to bring the deficit below 3% of GDP by 2029”.
  • The move sets the scene for upcoming ratings reviews with Moody’s (Oct 25) and S&P (Nov 29). Moody’s may be most interesting, with its sovereign rating for France (Aa2) one notch above that of Fitch and S&P (potentially increasing the odds of an outright rating downgrade).
  • Belgian paper underperforms after Moody’s outlook downgrade to “Negative”, with the 10-year OLO/Bund spread 1.5bps wider at 61bps. The change reflected the “risk that the next government will be unable to implement measures that would stabilize the government debt burden”.
  • Meanwhile, traditional peripheral spreads outperform, with the 10-year BTP/Bund spread 1.5bps tighter at 128bps at typing.
  • The ECB decision headlines this week’s regional calendar, with a 25bps cut widely expected and essentially fully priced in OIS.