Richer Following S&P Decision

The BTP curve bull steepens, with cash benchmarks 1-4.5bps richer following S&P's affirmation of Italy's credit rating at BBB (Outlook Stable) after hours on Friday.

• The 10-year BTP/Bund spread is 5.9ps tighter at 197.7bps as a result, with the ratings update outcome insulating Italian paper from the weakness seen in wider core global FI markets.
• A reminder that the spread was already off recent wides ahead of the weekend.
• In the details, S&P noted "rising private sector savings, tightening credit conditions, slowing manufacturing, and weakening global trade" as risks to the Italian outlook, but their assessment of well-documented fiscal concerns re: the 2024 budget was not so aggressive: "Budgetary consolidation will be more gradual than previously expected due to the economic slowdown and rising interest payments as a percent of GDP".
• The "accelerated deployment of the Next Generation EU funds", which S&P believe "will likely extend beyond 2026" was touted as the main tailwind to growth through-2025.
• Note, the MNI Policy Team recently reported that the EU is set to allow Italy some NGEU spending after 2026, consistent with the S&P outlook.
• Ratings agency updates will remain of interest in the coming weeks. The next rating decisions for Italy are DBRS on Oct 27 (this Fri), Fitch (Nov 10) and Moody's (Nov 17).