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Goldman Look For Fiscal Differentiation In Spread Pricing, Bonos Remain Preferred Long

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Goldman Sachs note that “OAT-Bunds spreads widened even before the snap elections were called in France, reflecting increased focus on the relative fiscal deterioration.”

  • “This suggests that, even if idiosyncratic French risk can increase further in a drawn-out government formation process, spillovers to other markets should be limited.”
  • They expect “broader macro trends (lower inflation uncertainty and policy easing) to prevent a meaningful widening in sovereign credit as a whole.”
  • Noting that “instead, markets are likely to continue to differentiate on relative fiscal risks.”
  • They are of the view that “tight levels of BTP-Bund spreads point to better risk rewards to BTP shorts through upcoming budget announcements.”
  • Goldman conclude with “while Spain is also in the midst of the budget process, the stakes are more political than economic - combined with growth outperformance, Bonos remains our preferred long.”
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Goldman Sachs note that “OAT-Bunds spreads widened even before the snap elections were called in France, reflecting increased focus on the relative fiscal deterioration.”

  • “This suggests that, even if idiosyncratic French risk can increase further in a drawn-out government formation process, spillovers to other markets should be limited.”
  • They expect “broader macro trends (lower inflation uncertainty and policy easing) to prevent a meaningful widening in sovereign credit as a whole.”
  • Noting that “instead, markets are likely to continue to differentiate on relative fiscal risks.”
  • They are of the view that “tight levels of BTP-Bund spreads point to better risk rewards to BTP shorts through upcoming budget announcements.”
  • Goldman conclude with “while Spain is also in the midst of the budget process, the stakes are more political than economic - combined with growth outperformance, Bonos remains our preferred long.”