Off Wides, RTRS Sources Doing The Rounds

10-Year BTP/Bund spreads compress by ~1bp around the RTRS sources story which noted that “ECB policymakers consider a spike in Italy's bond yields to be justified by the government's projection of higher deficits, but see it as a warning sign that should cool talk of ending a bond-buying scheme (PEPP reinvestments) early.”

• It would seem that the phrasing surrounding the “warning sign” has aided the modest compression, even with the sources generally expressing a lack of willingness re: intervening at current spread levels.
• The move also comes as core global FI markets firm a little, which will have aided BTPs.
• Elsewhere, RTRS sources noted that “Italy is lobbying its EU partners with increasing urgency to approve more flexible budget rules, as bond spreads widen and Rome fears that deviations from its 2024 spending targets will trigger a disciplinary procedure from Brussels.”
• The 10-Year BTP/Bund spread is still ~4bp wider on the day, on schedule for another multi-month closing high, albeit shy of the January wides.
• Italian fiscal deterioration, market speculation re: ECB QT and the outright U.S. Tsy sell off weighing on carry plays has resulted in BTP spread widening in recent weeks.

Fig. 1: 10-Year BTP/Bund Spread (%)

Source: MNI - Market News/Bloomberg