J.P.Morgan Recommend 10s/30s Weighted Italy-Germany Steepener

Late on Friday J.P.Morgan recommend a 10s/30s weighted Italy steepener vs. Germany (70% 10Y BTP/Bund narrower vs. 100% 30Y BTP/Bund widener) to “fade stretched flatness.”

• “The 10s/30s Italian credit curve has modestly flattened over the recent tightening move and is now trading more than 5bp too flat vs. level of 10Y spread on recent strong empirical relationship.”
• They “see no clear reason for the recent negative directionality with level of spreads to break down and believe the recent move is likely technical in nature, i.e. positioning/flow related, and hence would expect it to revert back.”
• “On supply front, given the strong market performance we cannot rule out a possibility of Italian DMO opportunistically launching a syndicate over coming weeks with 10Y linker or long-end green BTP as the potential options.”