Off Session Bests, Spreads Widen

BTPs have once again moved away from session bests, but yields are still lower today with core safe havens benefitting further as geopolitical angst heightens ahead of the weekend.

• Peripherals remain firmer on the day, but generally lag Bunds given the preference for German paper in outright flight to quality instances.
• The 10-year BTP/Bund hovers around the 200bp mark once again, and are now 3bps wider at 200.7bps on the day, a little shy of session extremes.
• Earlier comments from ECB's Visco and Simkus played down fragmentation risks and the need for ECB intervention over Italian spreads, while stressing the need for fiscal prudence in Italy.
• Simkus also noted that the Italian situation shouldn’t alter discussions on PEPP reinvestments (as he deemed all preconditions met re: an early end to PEPP reinvestments). This prompted a small widening in the BTP/Bund spread (~1bp), but the market was already biased in that direction.
• More recently, ECB's Knot noted that "QT has been smooth, well-absorbed by markets" while Lagarde stressed that some policy transmission still had filter through and that the ECB were "ready to do more if necessary".
• The Bank of Italy's updated forecasts see 2024 inflation at 2.4% Y/Y and 2025 at 1.9%, while GDP is expected to be 0.7% Y/Y and 0.8% in 2024 and 2025 respectively.