Spread To Bunds Oscillates Around 200bp, A Little Off Recent Wides

The 10-Year BTP/Bund spread remains happy to oscillate around the 200bp mark after the widening push ran out of steam ahead of 210bp.

• The well-documented fiscal situation in Italy and outright global bond sell off helped push the spread back towards YtD wides in recent weeks, as did ECB comms/sources playing down the need for TPI intervention at current spread levels.
• As we have flagged elsewhere, S&P are scheduled to provide their sovereign credit rating update on Italy (current rating: BBB; Outlook Stable) later this evening. This will be the first of three impending sovereign rating updates provided over the coming weeks (Fitch & DBRS Morningstar are set to provide the other two) and the proximity to those announcements, coupled with Italy's fiscal deterioration, will have also aided the recent widening run.
• Some of the more cynical market watchers will probably suggest that a potential unchanged sovereign credit rating/outlook combination may have been leaked to certain quarters, given the norms of pre-announcement discussions between ratings agencies and governments.
• After the move away from yesterday’s spread wides, a negative outlook move (which is probably the most we could feasibly see from S&P) would probably have a larger impact on BTP spreads than an unchanged rating/outlook combination.
• Note that despite the recent run of widening, the 10-Year BTP/Bund spread still sits comfortably shy of both ‘22 wides.

Fig 1: 10-Year BTP Bund Spread

Source: MNI - Market News/Bloomberg