J.P.Morgan: Election Outcome Constructive For BTPs

J.P.Morgan note that “the election outcome is a constructive one for BTPs and we continue to expect the 10-Year Italy-Germany spread to open around 10-15bp tighter on Monday from Friday’s close of around 140bp. Under this constructive outcome, we expect intra-EMU spreads to range trade over the coming months with Friday’s closing levels close to the upper-end of our expected trading ranges. The weakening of the ECB policy safety in 2022 will increase the sensitivity of intra-EMU spreads to political, macro, supply and external shocks which will likely be the catalysts for movements within the expected trading ranges, warranting a cautious and tactical approach.”

• “On the Italian credit curve, we expect gradual flattening of the 10s/30s and 30s/50s curves. We have also been recommending longs in 4-Year CCTeu vs. BTP ASW on attractive valuations which should also benefit from reduced political uncertainty going forward. Also, we see a decent chance of Italy launching a new 15-Year BTP benchmark syndicate this week.”