Dbrs confirms Italy's rating and raises the outlook. France, for Moody's negative outlook

A week after Fitch raised the outlook from stable to positive, the Italian government received another promotion from Dbrs. In a decision twinned with Fitch's, the Canadian rating agency raised the outlook to positive, maintaining the BBB(high), i.e. the step immediately preceding the 'A' that labels the safest issuers. The choice, Dbrs explains, stems from the improvement in the 2024 deficit, reduced from 4.3% to 3.8% due to higher revenues, and a fiscal plan that reduces medium-term risks. The next date for the agencies' verdicts is 25 November, when Moody's will give its verdict; but after last week's one-two punch, the autumn ratings season is now clearly coloured pink as the spread closes the week quietly at 121 points and the ten-year yield is at 3.5%.

Fitch's last week was a substantial promotion, retaining the triple B rating but raising the outlook to positive, while S&P instead confirmed both the BBB rating and the stable outlook because the growth forecast is 'rosy' but the 'debt challenge' remains.

Amid confirmations and improvements, in short, international observers give a positive reception to Italy's structural budget plan, the demanding programme for correcting the accounts presented by the government that aims to reduce the deficit to 1.9% in 2029 when the accounts should be supported by a structural primary balance of 2.2% of GDP to bring the debt down to 134.9%.

After all, the rating agencies are doing nothing more than taking note of what the markets have been saying, with their quotes, for some time. The spread between BTp and Bund started 2024 at 167 basis points and 12 months ago it stood at 203 basis points. Yesterday it closed at 121, and last week it had fallen to 117. The more the spread falls, the more it means that Italy is catching up with Germany on government bond yields. The market's strong appreciation was also seen in recent days, when the Treasury collected a record 200 billion demand from 700 investors (80% foreign) for 7- and 30-year BTp bonds placed through a syndicate of banks. 'The atmosphere towards our country is very positive and there is still room for improvement,' Cdp chairman Giovanni Gorno Tempini commented yesterday from Washington.

Admittedly, Italian BTp's remain the highest yielding bonds in the Eurozone. But if one looks at the market in relative terms, Italian debt is the best performing compared to the European biggies in 2024. Suffice it to say that while the spread between Italy and Germany fell, the spread between France and Germany rose from 52 basis points at the start of the year to 75 yesterday. So much so that yesterday came the news that the Treasury will cancel the usual autumn placement of BTp Valore dedicated to small savers. The decision was made in order not to flood the market, in view of the placement of 14% of Poste Italiane's capital.