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BTP/Bunds Continues To Trade At ~130bp, Iberian Tightener Preferences Remain Evident

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The recovery from yesterday’s lows in European equities and focus on the widely expected start to the ECB’s easing cycle continues to backstop widening episodes in the 10-Year BTP/Bund spread. The spread has been oscillating around 130bp since the start of May.

  • Meanwhile, focus on the same monetary policy dynamics, coupled with fiscal progress in both Spain & Portugal, continues to promote a tightening bias for Iberian paper.
  • Friday’s positive Spanish outlook (trend) move from Morningstar DBRS was the latest step on the favourable Spanish ratings trajectory.
  • 10-Year SPGB-OAT spreads have recently hit levels not seen since the start of the sovereign debt crisis, with questions over the French fiscal outlook allowing that move to extend further in recent months
  • Relative fiscal dynamics mean that Iberian tighteners have been a favoured sell-side play in recent times. Still, Commerzbank “continue to see value in SPGBs vs. OATs/semi-core as well as PGB-convergence trades vs. semi-core which are also hitting new lows.”

Fig. 1: 10-Year SPGB/Bund & SPGB/OAT Spreads (%)

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The recovery from yesterday’s lows in European equities and focus on the widely expected start to the ECB’s easing cycle continues to backstop widening episodes in the 10-Year BTP/Bund spread. The spread has been oscillating around 130bp since the start of May.

  • Meanwhile, focus on the same monetary policy dynamics, coupled with fiscal progress in both Spain & Portugal, continues to promote a tightening bias for Iberian paper.
  • Friday’s positive Spanish outlook (trend) move from Morningstar DBRS was the latest step on the favourable Spanish ratings trajectory.
  • 10-Year SPGB-OAT spreads have recently hit levels not seen since the start of the sovereign debt crisis, with questions over the French fiscal outlook allowing that move to extend further in recent months
  • Relative fiscal dynamics mean that Iberian tighteners have been a favoured sell-side play in recent times. Still, Commerzbank “continue to see value in SPGBs vs. OATs/semi-core as well as PGB-convergence trades vs. semi-core which are also hitting new lows.”

Fig. 1: 10-Year SPGB/Bund & SPGB/OAT Spreads (%)

Keep reading...Show less