The inflation outlook. Our base-case scenario still contemplates some moderation in inflation indicators in line with central bank assumptions. The main laggards in the moderation process are still (core) services. Given the highly optimistic scenario now discounted, we think that the risk of surprise may be a slower-than-expected rather than a faster reversion of inflation towards the targets in the months ahead. The dynamism in the labour market still requires a close monitoring: the current cyclical slowdown now ongoing has not been matched by a similar pattern in the labour market, consistent with the prevailing evidence of labour scarcity in some sectors. We project an average headline inflation for 2024 and 2025 at 2.4% and 2.0%, respectively (end of year print at 2.2% and 2.0%).
Value in the linker curves. i) After the significant upward correction in the last two years in the 5Y-20Y area/term, Euro forward real rates indicate the 5Y-5Y has the highest forward rate yield at c.0.50%. The longest part of the curve still looks expensive; ii) in the BTPI curve, the on-the-run premium offered by the benchmark bonds is still interesting; iii) the limited net supply activity in the BTPI this year will support RV performance, in particular in 2H24; iv) we see an interesting opportunity in the Italian spread BE 10Y-30Y, with the 10Y linker-BTP offering a more interesting entry level in BE terms; v) also ASW dynamics show a recent underperformance of the linker butterfly 5Y-10Y-20Y vs. the butterfly of nominal BTP.