Futures Fade Gap Lower, Curve Twist Steepens, Ratings Optics Eyed

BTPs have been subjected to some light twist steepening, while futures sit around Friday’s late levels, after closing the gap lower seen at the open (-15 on the day). Fitch’s choice to affirm Italy at BBB; Outlook Stable is front and centre (see full release here), although lingering risks ahead of Friday’s potential update from Moody’s (current rating: Baa3; Outlook Negative) are noted. Still, BTPs comfortably outperform German Bunds, tightening by ~3bp at the 10-Year point.

• UniCredit suggest that “BTPs could perform well today, after Fitch kept its rating and outlook on Italy unchanged last Friday. We do not expect a significant tightening as the rating agency’s decision was broadly anticipated. In addition, Moody’s is slated to review Italy’s debt this Friday.”
• In the background, note that a senior Italian official has told the FT that “Italy is overhauling how it will spend €200bn of the EU’s Covid-19 recovery funds as it tries to avoid squandering cash on wasteful projects, or even worse, failing to spend the money in time.” This is an incremental positive for BTPs, but the aforementioned ratings dynamics and general market gyrations/pricing of central bank paths will dominate.