J.P.Morgan Like Long Spain Vs. Italy & France On Fly

Late on Friday J.P.Morgan wrote “Spain remains our favourite pick in the periphery for expressing our strategic overweight stance.”

• Their preferred method to play this view comes via a long Bono Oct ’33 (100%) vs. short OAT Nov ‘33 (70%) and short BTP Nov ‘33 (30%) fly structure.
• They note that “Spanish bonds have been relatively underperformers vs. France and Italy over the past couple months and the 10Y weighted fly is trading close to its cheapest levels since early 2023.”
• “The weighted fly has been negatively directional vs. 10Y Italy-Germany spread, i.e. Spain cheapening vs. France/Italy as Italian spreads tightened.”
• “Going forward, we have a neutral/cautious view on Italy at current spread levels.”
• “We also see chances of Italy issuing a new 10Y benchmark via syndicate, which would likely put pressure on 10Y Italy sector over the coming weeks on anticipation of supply.”
• “The fly performs well in a risk-off move.”