EGBS: 10-year BTP/Bund Spread Consolidating Below 70bps, Issuance Plan Next Week

The 10-year BTP/Bund spread is consolidating back below the 70bp figure, aided by a modest pullback in EUR rates vol and a push back to all-time highs for European equity futures.  Given the extent of narrowing since 2022, the bar to further tightening next year has likely been raised. However, the combination of improving Italian fiscal fundamentals and domestic political stability continues to increase the attractiveness of BTPs for domestic and foreign investors. Initial support in the spread is the 2009 low at ~65bps.

• Earlier this week, Global Capital reported that Italy’s 2026 funding plan is expected to be released next Friday. A source noted that “The [issuance] numbers next year won’t look particularly different to 2025’s given we still have relatively large redemption needs — higher than this year’s actually”. That suggests funding needs of around E350-360bln.  As with many Eurozone sovereigns given this year’s curve steepening, focus will be on the distribution of issuance across maturities.
• The source said that “while BTP spreads depend on the trajectory of our public finances for sure, another big component is on growth, and that’s probably the big challenge for Italy. So it’s very difficult to say where we will head to”. The weak growth trajectory is a risk we have been flagging for some time, but has not impeded impressive spread narrowing this year.