The announcement of the anti-spread measures issued by the ECB | Cbonds Global

The announcement of the anti-spread measures issued by the ECB benefited the BTP-Bund spread

The announcement of the anti-spread measures issued last week by the ECB benefited the BTP-Bund spread at the beginning of the week. At that time, in fact, the spread was close to 200 points, down from the peak reached last week (237 basis points).

However, the situation remains tense for the Italian economy which will probably have to face a recession. Like many Western economies that are recovering from the pandemic and are now facing disruptions caused by the conflict in Ukraine, the country faces high inflation (price hikes were 6.8% in May) and a recession always seems more obvious. The markets identify Italy among the countries most at risk as it has always had a very high Debt / GDP ratio (151%) and today, normalizing interest rates and easing Quantitative Easing to avoid inflation could prove fatal. Furthermore, Italian banks, unlike German ones, are much more exposed to the Russian market and this could have long-term consequences.

However, according to the Financial Times, the situation is very different compared to the crisis of 2011. First, Italian banks have much stronger capital buffers than in the last decade and boast a much higher profitability. The country's leadership itself is much more credible on European markets and guarantees a large slice of stability compared to 10 years ago.

Furthermore, Myles Bradshow, Head of Global Aggregate Fixed Income Strategies of JP Morgan Asset management told IlSole24ore: “Today the Italian banking system is much stronger - he observes -. Precisely the crises of the past years have forced credit institutions to strengthen their assets, so today they are strong enough to support an increase in the spread. This means that the rise in the BTp-Bund differential will have less impact on the real economy than in the past".

He also states that the average life of the Italian public debt is very long (about 7 years) and therefore it will take time before the increase in rates can have a significant impact. Italy can also count on the PNRR plan, with EU funds to stimulate investments, reforms, growth and therefore less need for debt. Finally, both Bradshow and the Financial Times agree that the reasons for this increase in the spread are not attributable to Italy but to general reasons related to inflation and the situation in Ukraine.

The ECB, for its part, has reassured the markets by stating that even if an anti-spread shield is not foreseen for the moment, this could be implemented in the future to calm the markets.