HALISTER1: Go Short BTPs vs USTs as Italian Political Uncertainty Rises: MS

Go Short BTPs vs USTs as Italian Political Uncertainty Rises: MS

(Bloomberg) -- Recommend switching short 10Y bund vs UST trade into short BTPs vs USTs given peripheral spreads are already at tight levels, Morgan Stanley strategists including Andrew Sheets write in a client note.
  • Upcoming referendum on constitutional reform in Italy raises political uncertainty; Prime Minister Renzi pledged to resign if referendum lost
  • UST, BTP real yield differentials at 0.4% are close to 5Y highs, pricing in little risk premium
  • Morgan Stanley economists recently pushed back expectations for further ECB easing to Dec. from Sept.: MORE
  • Risks to trade would be divergence in Fed and ECB reaction function to global developments, and U.S. elections
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Andrew Sheets (Morgan Stanley)

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