Political risks fall, but ECB tightening points to higher spreads

While we think that the re-election of Sergio Mattarella as Italy’s President of the Republic and the victory in the Portuguese general election of the current Prime Minister Antonio Costa’s socialist party reduce the upside risks to euro-zone “peripheral” spreads, we still expect those spreads to widen a bit over the next two years as the ECB reduces, and ultimately ends, its net purchases of government bonds.