Citi Recommend 10s30s BTP Flattener Vs Bunds

Citi write “the relentless tightening in EGB spreads has continued, with the 10yr BTP-Bund spread now below a key psychological barrier (129-130bp).”

• “The narrative from last week has not really changed and BTPs still look cheap vs broader iBoxx.”
• “We continue to see tightening as more likely than widening, towards 100-110bp for 10yr BTP-Bund.”
• “For now, we find it interesting that the improving risk sentiment and tighter spreads have encouraged investors to shift out on the BTP curve, with the 10s30s BTPs flattening vs Bunds on 10yr spread tightening, potentially shifting the recent relationship towards the long-term pattern.”
• “This looks likely to persist in any further spread tightening as the credit premium in the 10yr sector diminishes further and in case real money also adds BTP longs.”
• “In contrast, any cross-market widening is likely to be led by 10s.”
• “We see risk-reward attractive in BTP 10s30s flatteners vs Bunds (or vs swaps).”