NatWest: Buy BTPs For Retail Therapy

NatWest write “starting the year there didn’t seem many reasons to be positive about Italy. Recession risk, reliance on Russian gas and debt sustainability in a high-rate environment made the skew of risks on BTPs look unappealing.”

• “Six months on, the clouds have parted. Banking crises in the U.S. and on the alpine doorstep, ratings reviews, delays to NGEU funding have all been thrown at BTPs since. Nothing has stuck.”
• “We like BTPs. On the positive side of the balance we have economic recovery, positive seasonality and strong funding execution. On the other side, Italy has been shielded from QT so far but won’t be forever, and there is low-level concern about banks’ efforts to rebuild central bank liquidity for TLTRO-iii repayments in H2. But more than anything, the absence of clearer negatives remains a positive.”
• “In relative value, long 2-Year (and 30-Year) look an attractive way to be long defensively… Front end Italy may be cheap due to concern about TLTRO-iii effects, which we don’t share. Short the middle on BTPs 2s10s30s looks attractive as a way to be short, for those who disagree with our more positive assessment.”