Italy's 10-year spread over German bunds widened on Tuesday, moving with French bonds as pressure on European debt continued. Bank of America analysts see foreign demand for Italian bonds, but say longer maturities face a harder supply-demand picture.
Italy's 10-year government bond spread over German bunds widened on Tuesday, moving in tandem with French bonds. French bond weakness spread across European markets and became the main driver.
Spread reaches its widest since May 2025
The 10-year BTP-Bund spread reached levels last seen in May 2025, according to market data. Italian bonds initially held steady during the recent selloff, but later moved wider.
The 10-year French OAT-Bund spread traded near its widest level since 2012. Since the start of the US-Iran conflict, Italian spreads had largely moved in line with energy prices and interest rates. That relationship weakened as the French selloff took over.
Bank of America sees uneven support
Bank of America analysts said relative value should attract some foreign private demand for Italian bonds. Domestic investors appear to have limited capacity and willingness to add positions at current levels.
Shorter-maturity Italian bonds should remain better supported by retail demand and reduced issuance if rates stay elevated, the analysts noted. A potential credit rating upgrade from S&P could provide additional support.
Longer maturities face a more difficult picture. The government has limited room to reduce issuance further, and Italian life insurance companies may slow their bond purchases.
Source: Forex News
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