Goldman: BTP-Bund Still At Risk Of Widening

Goldman Sachs continue to think “conditions are not in place for a meaningful relief to spreads.”

• “Global duration remains under pressure despite the geopolitical situation, which also presents upside risks to energy prices and fuels fiscal concerns.”
• “Finally, as the Italian 2024 budget bill undergoes its evaluation by domestic and European institutions, Italian fundamentals will likely remain under scrutiny in coming weeks. On that front, we note that other rating actions are expected after S&P affirmed its ratings, culminating with Moody’s on November 17th (with Italy on a negative outlook for that agency).”
• “Given the above, we see scope for further BTP-Bund spreads widening in coming weeks towards 235bp at the 10y point.”
• “Beyond, while abating headwinds from core rates and lower macro uncertainty should provide some relief through 2024, long-term BTP-Bund spread tightening probably also hinges on a rebuild of fiscal credibility, in the absence of relief from rates or policy.”