Some Reasoning Behind the BTP Spread Widening

When it comes to the driving factors surrounding the BTP/Bund spread widening that we have flagged we look to 2 major matters today:

• 1)Hawkish ECB sources from the FT looking to keep the option of a rate hike in late ’23 open.
• 2)The BBG interview with Governing Council member Vasle. As he revealed his openness to further hikes if needed, with a particular focus on “much more data” being available come December (suggesting he could have been one of the hawkish sources speaking to the FT), along with a reference to “still high” core inflation. Elsewhere, he noted that current interest rate levels provide the Bank with more space to discuss QT, with the potential for an acceleration of the pace in APP reductions noted.
• These matters seem to outweigh any impulse from a late Thursday BBG sources piece suggesting that the Italian PM and Finance Minister are “increasingly aware of the impact that a wider-than-announced deficit could have on bond yields and the ability to finance new measures,” suggesting they are seeking to reassure investors that Italy’s finances are under control.
• BTP futures unwind yesterday’s ECB-driven rally.