Long the 5Y – 10Y SPGB – BTP box

In the current context, feels like the tightening potential of EGB spreads is limited. We even believe the pay-off of sovereign spread is now asymmetrical with widening risks taking over at some point . BTP look more vulnerable than Spain with macro fundamentals which are closer to Germany at this stage while Spain will keep being the top macro performer of the EZ. For us, the shape of the Italian curve does not properly reflect these potential vulnerabilities and should be steeper than the Spanish one. Thinking that the gap between the 10Y and 5Y BTP – SPGB should be wider, we recommend entering in a box, selling 10Y BTP & 5Y SPGB, while buying 10Y SPGB & 5Y BTP. This strategy will benefit from the 5Y BTP higher roll-down (entry: 3.5bp , target: 15 bp ; stop: -3bp; horizon 3 months) .