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Less Is More

02 July 2019 by jbchevrel

The Italian government lowered its 2019 budget deficit target in order to comply with EU rules and avoid sanctions. The deficit is now expected to be 2.04% of GDP, according to Bloomberg citing an anonymous source. That is to be compared with the draft budget back in April, which was targeting 2.4%. Italian risk rallied on the back of that. In particular, Italian financial CDS outperformed that space. MedioBanca (BACRED) rallied -4.5bp in snr and -7bp in sub. Intesa (ISPIM) rallied -4bp in snr and -7.5bp in sub. UniCredit (UCGIM) rallied -4.5bp in snr and -7.5bp in sub. In sovereign space, the 10y BTP-Bund spread closed a rather sharp c60bp rally since the end of May. 10y yield broke below 1.85% and 2y yield broke below 0. The doc14 5y CDS also capped a c50bp rally since the end of May today. The c€7.6b fall in deficit agreed by ministers for this year, is due to higher revenues and lower spending, including €1.5b previously set aside for social programs in which demand has been lower than expected.