Buy BTP 5.75% 02/33 and Sell BTP 0.95% 12/31: currently trading at 22bp, target 12bp (stop loss 27bp).
After the exchange operation executed last week by the Italian Treasury, BTP 5.75% 02/33 now looks very cheap vs. bonds with similar maturity. The total amount of BTP 5.75% 02/33 is now close to EUR22bn, so we tend to exclude any other supply activity on this off-the-run bond in the short term.
The short leg of the suggested spread has been defined in order to avoid the 2032 BTPs that are slightly special in the repo market.
The high/low coupon spread (typically seen as a directional bearish spread in credit pricing) is partly offset by the negative duration and the positive carry profile of the trading idea.