SocGen Look For Some BTP Concession/Tick Higher In Repo In ‘24

Societe Generale write “Italy plans to issue €340-360bn of BTPs in gross terms and €75-95bn in net terms in 2024, more than in 2023. As QT will continue, private investors will need to absorb higher volumes - but who exactly could buy BTPs?”

• “Italian banks are likely to stay away from the BTP market, and even be net sellers, as they were in 2023. Facing TLTRO-III redemptions, Italian banks have to maintain a funding effort, at least temporarily, as well as limit the growth of assets, and this would be consistent with letting their bond holdings decline.”
• “Strong demand from domestic retail was the driver of the BTP success story in 2023. We see room for more household purchases in 2024. But, at the same time, retail investors’ appetite for BTPs will depend on yield levels.”
• “Assuming Italian households buy as much BTPs as in 2023, net foreign purchases would still have to increase significantly to fill the QT gap. For these flows to materialise, we may have to see some price concessions and a wider BTP/Bund spread.”
• “Even if the spread between Italian and German repo rates doesn’t widen, ongoing normalisation of the ECB balance sheet implies a target at ESTR+15/20bp for BTP repo.”