Buy CCTeu 5.795% 01/25 and Sell BTP 0.35% 02/25: currently trading at c.30.5bp (DM CCTeu vs. BTP ASW)
Italian CCTs-eu continue to offer a non-negligible pick-up vs. BTP and BOTs. From a general perspective, we like long positions on short-end CCTs-eu for several reasons: i) they offer efficient hedging vs. the possibility the market is wrong about the likelihood of the ECB cutting rates in 2024; ii) in contrast to longer maturity CCTs-eu, this part of the curve should be safer in the event of a surge in Italian credit risk pricing.
Specifically looking at the CCTeu Jan 2025, we note that it is offering the highest pick-up vs. the BTP curve on several metrics. Moreover, the next fixing of the EUR6M parameter for the coupons will be in January and July 2024, with implicit forward rates that are currently at c.3.93% and c.3.57% respectively. In our view, this offers a good opportunity to bet against current market expectations on a 12-month time horizon.