Quotes from UniCredit Research:
- The 10Y yield spread between Italian and Spanish bonds has tightened to virtually flat levels, the narrowest since April 2014, from over 30bp in December 2014.
- Political woes in Spain, with the market drawing parallels between Podemos and Syriza, while domestic investors showed little support for SPGBs added to the QE yield-hunting environment. SPGBs underperformed BTPs by 1.60% in the first two months of the year.
- We think the BTP/SPGB spread will remain tight over the coming months, staying within the -10/+10bp range. The balance of growth and political outlook, developments in demand for EGBs as well as QE flows do not point to divergent fortunes for BTPs and SPGBs.
- We suggest looking at relative value opportunities related to QE flows and supply along the two curves. We like Spain at the 3Y and 10Y maturities (from SPGB Jan17 to Oct18 and from SPGB Jul25 to Jan29), while we prefer Italy in the 20-25Y area (from BTP Aug34 to Sep40) and across the linkers universe.
