EGBS: Spreads To Bunds Little Changed, SPGB & OAT Auctions Pass Smoothly

EGB spreads to Bunds little changed to 1bp wider, with the modest widening mostly driven by the dip in equities and presence of supply, in addition to wider pressure stemming from U.S. fiscal concerns & tepid demand at the latest 20-Year Tsy auction.

• The 10-Year BTP/Bund spread continues to hover around 100bp.
• We have previously argued that sustained moves below 100bp likely require more meaningful progress in EU-U.S. trade talks.
• We also highlighted that positive action from Moody's at tomorrow’s scheduled rating review of Italy could also provide a catalyst for further narrowing.
• On that update, Citi suggest that “recent fiscal developments should be supportive for an upward move, especially as Moody’s currently rates Italy below both S&P and Fitch. Still, the key criteria set in March for an upgrade was some evidence that the economy could grow at a sustainably stronger pace beyond the NGEU-stimulus, especially in the light of an ageing population, which remains a hurdle. On balance, the recent fiscal trajectory perhaps supports a change in the outlook to positive, potentially as soon as this week. Such an outcome could support further richening for BTP on ASW given how cheap they remain compared to their other EMU counterparts”.
• OAT and SPGB supply passed smoothly enough, helping to remove any pre-auction concession.
• No reaction in OATs to recent comments from the IMF suggesting that France is on track to meet it 5.4% deficit goal for the current year. The Fund also underscored the need for further French fiscal efforts.