Halister News

(Bloomberg) -- Expect ECB QE flows, low net issuance and a large short base to provide near term support for Italian bonds, write Barclays strategists including Giuseppe Maraffino in a note.

• BTPs have found support from improvement in market sentiment, prompting some investors to unwind some of the short positions on Italy
• Short/underweight positioning is still large, following the “massive increase” in repo transactions on special Italian sovereign bonds
• Recent re-tightening vs Spain, has come from multi-year wides; BTPs still trade at around the highest levels seen during the EGB crisis
• Forecast net issuance in Italy from June-December of EU2b, with PSPP flows translating into a displacement effect of EU53b, assuming all investors roll bonds; Spain sees the same flows of EU31b and EU9b for the rest of 2017
• In terms of general views, continue to hold short duration bias in EUR rates through reds/greens and Sept. 2017/Jan. 2018 EONIA steepeners; hold long Sept. 2017 Bund ASW vs EONIA
• In EGB spreads, maintain short 10y Spain vs Germany, as see much of the good news as priced in after French election, especially against a backdrop of a less dovish ECB

To contact the reporter on this story: Stephen Spratt in London at sspratt3@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Neil Chatterjee