HALISTER1: Buy Periphery EGBs Ahead of Italy Vote, ECB Meeting: BofAML

Buy Periphery EGBs Ahead of Italy Vote, ECB Meeting: BofAML

(Bloomberg) -- Bank of America Merrill Lynch is holding a tactical long view on euro-zone periphery bonds for November following reduced ECB QE-tapering worries and positive political and bank-related news, analysts including Sphia Salim write in a note.
  • The bank sees value in going long peripheral bonds for carry in November; analysts like Italian 3y and Portuguese 5y spreads vs Germany
    • The Italian 3y looks cheap vs other peripherals and provides attractive vol-adjusted carry and roll; it should also benefit from high coupons and redemption payments
  • Spread vol likely to rise in December, driven by technical changes to QE and Italy referendum’s impact on bank recapitalizations
  • Main risk for Italian and Portuguese spreads in November is a surprise event on the banks side, any renewing concerns around recapitalization plans and a reduction in the undecided voters in the Italian referendum polls in favor of “No”
  • Any renewed ECB tapering expectations over November would also affect BTPs negatively
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Sphia Salim (Bank of America Corp)

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