Primary Market Focus - New BTP Jul28: we see its fair value at BTP Mar28+4bp

  • On Thursday, Italy will sell EUR 2.5-3bn of BTP 0% Apr24, EUR 4-4.5bn of the new BTP 0.5% Jul28 and EUR 1.25-1.75bn of BTP 1.7% Sep51, amounting to a total issuance of EUR 7.75-9.25bn. There will be no redemptions supporting the sale.
  • We see room for the BTP-Bund spread to tighten from current levels, which should go hand in hand with a bull-flattening of the curve up to the 10Y area. At the short-end of the curve, we like 1-3Y BTP extension trades. The 5-7Y spread trades at historically high levels, so for those investors not willing to extend to the 10Y, a 5-7Y flattener is a good choice. We do not believe that the 10/30Y spread on the BTP curve can flatten, given that we expect supply pressure at the extra-long end of the curve to remain sizeable.

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