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EGBS: Spreads Within 1bp of Friday’s Levels; Ratings Action In Line With Exp

EGBS
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10-year EGB spreads to Bunds are within 1bp of Friday’s closing levels, with fresh meaningful macro cues lacking this morning and Friday’s ratings action coming in broadly as expected.

  • The 10-year OAT/Bund spread is ~0.5bps tighter at 68bps, with the tail risk of a downgrade from Fitch (rating affirmed at AA-; Outlook Negative) averted. Fitch again wrote that France faces “significant fiscal risks due to substantial fiscal deficits and rising government debt levels”, while “political fragmentation complicates France's ability to implement sustainable fiscal consolidation”.
  • Over the weekend, PM Bayrou seemingly ruled out a return to a retirement age of 62, drawing criticism from opposition politicians – highlighting existing political risks in France.
  • Greece regained investment grade status from Moody’s (upgrade to Baa3; outlook stable). The move was as expected, and the 10-year GGB/Bund spread is ~0.5bps tighter at 79bps. Moody’s wrote that “the public finances have improved more quickly than we had expected” and they “expect Greece to continue to run substantial primary surpluses which will steadily decrease its high debt burden.”
  • 10-year PGB spreads are little changed at 49bps, with Fitch affirming Portugal’s rating at A- (Outlook Positive). It’s impossible to know if the recent Government collapse prevented an upgrade, but Fitch did write that “the upcoming election period could affect the implementation of fiscal measures, potentially undermining Portugal's fiscal position”.
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10-year EGB spreads to Bunds are within 1bp of Friday’s closing levels, with fresh meaningful macro cues lacking this morning and Friday’s ratings action coming in broadly as expected.

  • The 10-year OAT/Bund spread is ~0.5bps tighter at 68bps, with the tail risk of a downgrade from Fitch (rating affirmed at AA-; Outlook Negative) averted. Fitch again wrote that France faces “significant fiscal risks due to substantial fiscal deficits and rising government debt levels”, while “political fragmentation complicates France's ability to implement sustainable fiscal consolidation”.
  • Over the weekend, PM Bayrou seemingly ruled out a return to a retirement age of 62, drawing criticism from opposition politicians – highlighting existing political risks in France.
  • Greece regained investment grade status from Moody’s (upgrade to Baa3; outlook stable). The move was as expected, and the 10-year GGB/Bund spread is ~0.5bps tighter at 79bps. Moody’s wrote that “the public finances have improved more quickly than we had expected” and they “expect Greece to continue to run substantial primary surpluses which will steadily decrease its high debt burden.”
  • 10-year PGB spreads are little changed at 49bps, with Fitch affirming Portugal’s rating at A- (Outlook Positive). It’s impossible to know if the recent Government collapse prevented an upgrade, but Fitch did write that “the upcoming election period could affect the implementation of fiscal measures, potentially undermining Portugal's fiscal position”.