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February Brings The Rain

06 February 2019 by jbchevrel

Not just in London, actually. The BTP market has been under some pressure over the past few sessions. Today the 10y BTP/Bund spread reached 270bp again. As that spread widened c30bp, the 5y sovereign CDS widened by c15bp. That comes even as today’s 30y syndication sounded successful. €8B sold vs €41B of bids. It seems like a strong bid-to-cover. It seems that many people have a clear idea how Italy will be like in 2049. Are these people non-resident (read: non-sticky ratings-driven investors)? May well be. Non-resident holdings had fallen to 30% in Q4 (a % seen last time in 1999). Then the strong foreign demand (64%) for the syndicated 15y in JAN shows appetite from non-domestics. On the fundamental side of things, the governments c1% growth target is everywhere but in the data. Technical recession in Q4 (GDP -0.2q +0.1y). Weak January activity indicators (47.8 mfg PMI 48.8 composite PMI). New car sales -7.6%y. Unsurprisingly, ANSA reported that the EU expects sub1% (0.2%y) growth in 2019. Adding to it, the IMF says there is no way Italy achieves 1% with the current policies.