Buy EnBW 1 7/8 2033 vs. sell RWE 0 5/8 2031

Z spread-wise, EnBW 1 7/8 2033 (ISIN: XS1901055472) currently trades wider than RWE 0 5/8 2031 (ISIN: XS2351092478) by around 22bps. This spread differential is hard to justify in light of the following elements: The rating differential between the two issuers. EnBW’s ratings (A- stable / Baa1 stable / WR) are on average one-notch higher than RWE’s (WR / Baa2 stable / BBB+ stable). As part of our coverage initiation, we are in the opinion that EnBW’s anchor at current rating levels is solid and unlikely to be affected by the hefty capex plan underway (see EnBW: a defensive play in the utilities sector ); The average spread differential between the two bonds YtD (12bps). This differential even went into negative territory this year, standing at -5bps on 13/02/2025, a level we deem commensurate with the rating differential between the two issuers . We therefore recommend buying EnBW’s bond and selling RWE’s , with a potential gain of 20bp in mark to market after taking account of bid/offer spreads in entry.