Peripheral relative value. Peripheral EGB spreads tightened last week, although intraday correlations with Germany remain volatile, suggesting persistent market fragility. Recent tensions have been predominantly France-specific, with limited spillovers to EU bonds so far. Spanish bonds proved resilient despite political uncertainty, while Portugal's completion of its funding programme supports the PGB belly, which we favour in RV terms versus Germany and the EU.
We continue to favour Spain, Portugal and EU bonds as relatively defensive exposures, given their expected lower volatility, particularly in the short end and belly of the curves.
2027 fiscal and funding outlook. Based on 2027 fiscal documents recently approved by the Governments our estimates: i) Italy: 2027 gross m-l term debt issuance at EUR337-342bn, equivalent to EUR90-95bn in net terms, while net funding requirements from institutional investors at EUR110bn in 2027, compared with EUR142bn in 2026. ii) Portugal: 2027 gross m-l term debt issuance at EUR25.9bn, EUR10.7bn in net terms, while net funding requirements from institutional investors at EUR22.2bn in 2027 (vs. EUR18.4bn in 2026).
BTP auction preview. The Italian Treasury will offer EUR2.00-2.50bn of its 3Y benchmark, EUR2.50-3.00bn of its 7Y benchmark and EUR1.00-1.50bn of its 15Y benchmark at its auction tomorrow. 3Y: Favour Italy over France and Germany in a credit fly, conditional on contained volatility and orderly EGB spreads. 7Y: Favour Italian 7Y versus the 5Y-10Y fly, anticipating relative recovery after the auction cycle. 15Y: Favour Italian 15Y versus longer maturities, expecting renewed steepening of Italy’s long-end curve.
Sovereign rating. this Friday, DBRS will review its rating/outlook on Italy (A-Low, Stable Outlook). We expect DBRS to affirm both the rating and the outlook.
Weekly supply. In the bill market, total issuance of c.EUR18.6bn is expected in gross terms. In bonds, the Netherlands, Germany, Italy, Portugal, Spain and France will be active this week. Total issuance of c.EUR35.3bn is expected in gross terms and EUR32.3bn in net terms. On top of this there will be the pre-scheduled EU syndication.