ITALY: Moody’s Review Scheduled After Hours, Potential For Outlook Upgrade

Moody’s are scheduled to review Italy’s sovereign rating after hours, with its current rating of Baa3 (Outlook Stable) one notch below that of S&P and Fitch (both BBB, last reviewed on Oct 18). An outlook upgrade is possible

• In October, Fitch upgraded Italy’s outlook to Positive, pointing to “a credible fiscal plan, stable political situation and increased potential growth”.
• Although S&P did not make any rating/outlook changes in October, it noted that the medium-term fiscal plan's projections are "feasible if the economy and labor market continue to show resilience".
• Citi expect Moody’s to deliver an outlook upgrade to Positive given “the recent improvement in Italy’s fundamentals”.
• They note that such a move “would help distance Italy from the sub-IG threshold and reduce tail risks for the credit but might not move BTP spreads much given the rich starting point”.
• The 10-year BTP/Bund spread is currently 125bps, having widened 5bps this week on Russia/Ukraine war escalation. However, it remains 10bps below post-US election highs, largely a function of dovish ECB repricing on tariff-related Eurozone growth concerns.
• We expect broader EZ macro and geopolitical concerns to be the primary driver of spread movements next week, though positive ratings action could generate some background tightening for BTPs.