The Spreads Italian fell to three-year lowswhile purchases of BTPs continue, causing the related yield to fall. It is the effect of the recognition of the greater credibility of the country, sanctioned by the judgments of the rating agencies, in response to a mix of factors that have to do with economic policy, the performance of the economy and inflation and the ECB strategy.
Spreads at minimums since the “Draghi” period
The Spread reopened today at 117 pointsthe lowest level since 2021, the period of the settlement of Government of Mario Draghi. In that period, the credibility of Italy, led by the former governor of the Bank of Italy and former President of the ECB, had skyrocketed and the spread had reached around 120 points, a level which has now been punctured downwards.
But the decline recorded in the differential between the yield of BTPs and the German Bund is even more striking if we take two other key periods: the installation of the Meloni Government and the first totally Giorgetti-style maneuver. NoSeptember 2022following the victory of the centre-right coalition and allGiorgia Meloni’s role as Premierthe Spread had risen to 250 pointsi, a level from which it has now halved, losing around 52%. If you then consider it October 2023, period in which the Meloni Government was grappling with its first real meeting Maneuver (that of 2022 was almost obligatory and dominated by the treasure accumulated by the Draghi Government), we note that the Spread has lost approximately 43% compared to the 210 points of then.
At the same time, the performance of the BTP fell to 3.36% and compares with the 2.18% of the German Bund, with the 2.87% of the Spanish Bono and with the 2.90% of the French OAT. A return that recorded a progressive improvement and which testifies to the greater credibility of our country internationally and the rediscovery palatability of our government bonds.
But what factors produced this result?
The economy and inflation
Last week the data arrivedinflation in the Eurozoneconfirming a clear slowdown in price growth from 2.2% in August to 1.7% in September, figure also revised downwards compared to the preliminary 1.8%. Even the ECB confirmed that the deflation is “well underway” and that the price growth trend is now under control and is aiming straight for the 2% target during 2025 (not in the second half as previously expected).
Italian inflation is even lower of the European one, establishing itself at 0.7% very far from the Eurotower target, in the face of growth that is not among the worst in the Bloc and remains at around 0.8% (just under the 1% expected by the MEF’s forecast model).
The ECB’s strategy
The slowdown in inflation, obviously, has already had an impact on monetary policy of the ECB and it will have more next year, when inflation will presumably return in line with the 2% target. THE deposit rates have been cut to 3.25% (the repo one at 3.40%) and another 25 point cut is already expected in December. By next year, rates are expected to be around 2%, the neutrality threshold, and there could therefore be another four 25-point cuts during 2025.
There President Lagarde, in last week’s press conference, he did not want to make promises, reiterating an approach linked to data and meeting by meeting, but his words betrayed a certain optimism about the dynamics of inflation, which is revealed in one more dovish strategy of monetary policy.
Maneuver and new Stability Pact
Also supporting the country’s credibility is the “prudent and responsible” economic policy reiterated several times by the Prime Minister Giorgia Meloni and the Minister of Economy Giancarlo Giorgetti, who have repeatedly confirmed their intention to put the deficit and debt on a downward trajectory foreseen by new Stability Pactallowing Italy to exit the excessive deficit procedure in 2026.
This is why the government has come up with “with very few resources” and with a modest margin of maneuver one Budget law which does not increase taxes and tries to continue along the path of supporting families and businesses and tax simplification. A maneuver that evidently the market appreciated, pushing the spread and the yield of the BTP downwards, even before the expected judgment of the rating agencies.
The promotion of rating agencies
The week ended with a great result: the Fitch rating agency promoted Italya, improving the outlook on the rating is “positive” from “stable” and confirming the BBB rating. Even for S&P, Italy’s credit rating remains BBB with a stable outlook. Both agencies mentioned the “credible fiscal policy” and “stable political situation” of this Government.
S&P he even talked about “rosy” growth prospects for the beautiful country, predicting an average growth of 1% in the two-year period 2024-2025, very far from the “zero point” of the previous decade.
Fitch instead he underlined that the improvement in the outlook to positive refers to improvement of the fiscal framework and compliance with EU budgetary policies.