Sovereign Rating. Moody’s affirmed its rating/outlook on Italy (Baa3, Outlook Stable) and Scope upgraded Portugal to A (Outlook Stable).
Tactical approach on peripherals: i) Considering the huge redemption coming from France this week (EUR35.7bn) which determines a strongly negative net supply this week (c.EUR20bn, the week with the third-highest negative net supply this year), we expect peripheral spreads will benefit, recovering the widening vs. Bund that occurred last week and continuing the rebound in ASW spreads. Spain and Portugal should benefit the most, given the preference of investors to increase diversification from France towards Spain and considering the complete lack of supply this week from these two issuers; ii) In terms of RV performance within the curves, we expect the spread tightening will arguably be led by the 10Y tenors, which we expect to outperform the 7Y-15Y area.
Weekly supply. On the bills market total issuance will be c.EUR25.4bn in gross terms (c.EUR20.8bn in net terms). In bonds the EU, Germany and Italy will be active this week. Total issuance is expected to be c.EUR19.8bn in gross terms but negative by c.EUR19bn in net terms (redemptions from France).