Goldman: Long-Run Political Risks Remain For BTPs, Near-Term Ltd

Goldman Sachs note that "Italian regional elections will be held over Sunday and Monday (20/21 Sep). Six regions are in focus with regard to the implications for the current governing coalition of PD and M5S. PD currently holds four of the regional presidencies up for grabs, but is behind in the polls in Marche, Liguria and Veneto and faces close races in Tuscany and Puglia. Tuscany will be closely watched given the long historical association of PD with the region.

• We expect that the closest thing to a 'market neutral' scenario is that PD retains two of these presidencies: Campania and Tuscany. We would expect modest BTP-bund spread tightening/widening either side of this outcome.
• But even an adverse result for the current governing coalition does not necessarily translate into concrete consequences for the national government, given that early elections remain a relatively low risk. Instead, political risks will likely be deferred until next year and so there is a window for BTP-bund spreads to compress towards pre-COVID tights to year-end on the back of ECB policy and the economic recovery."