Sell SPGB 6% 01/29 and Buy SPGB 2.80% 5/26 and Buy SPGB 0.50% 10/31: currently trading at 33bp, target 18bp (stop loss 40bp).
In our view, the body of the SPGB 3/6/8Y fly is trading expensive compared to the wings on a historical basis, both in absolute and RV terms (i.e., vs. Italian or German curves) and it does not show any relevant correlation with bearish/bullish market trends.
For the selected bonds, this butterfly gives you the opportunity to take advantage of the relevant on-the-run premium offered by the new SPGB 3Y 2.8% May 2026 and to approach this positive market momentum with a defensive convexity trade selling the high-coupon SPGB 6% Jan 2029 and buying the low-coupon SPGB 0.50% Oct 2031.