PGB Spreads To Bunds 10bps Off Political Uncertainty-Induced Wides

10-year PGB spreads to Bunds have narrowed around 10bps from the wides seen following ex-PM Costa's resignation on Nov 7, currently trading at 62.7bps. Following the bout of political uncertainty, analysts were quick to note that spread widening is likely to be contained as strong fundamentals reassert themselves in the medium-term.

• On Wednesday, The Bank of Portugal introduced a 4% sectoral systemic risk buffer on "exposures secured by residential real estate", in effect from Oct 1, 2024.
• The release notes that the "macroprudential tool is preventive and aims to increase the resilience of institutions to the materialisation of potential systemic risk in the residential real estate market in Portugal". This tool strengthens the narrative around strong medium-term fundamentals and should help mitigate the impact of a tail-risk event surrounding the real estate sector in the future.
• BCP, the largest private bank in Portugal, weighed in on the release today, stating that it was "a preventive measure to address the possible materialization of potential risks", and that their own funds requirement is expected to rise 26bps as a result.