Preparing for the Carry Summer

Mizuho suggests a long 2y1y BTP trade to capitalize on expected summer carry, anticipating range-bound EUR rates and spread compression.

Key Takeaways

• 1.Expect a summer lull that benefits positive carry positions in front-end BTPs.
• 2.Trade recommendation: Long 2y1y BTPs via a weighted spread of long BTP 3.35% Jul29 and short BTP 0.5% Jul28.

Table of Contents

• Long front-end BTPs via 2y1y
• Carry summer: a seasonal favourite – another repeat this year?
• Summer seasonality in 10Y BTP-Bund spreads
• 10Y BTP-Bund vs iTraxx Main
• Besides carry: a brief look into fundamentals
• BTP 2s3s slope (using interpolated rates)
• IT 2y1y vs 10Y BTP-Bund spread
• Main risk: a spike in vols
• EUR 3m2y and 3m10y implied vol
• Trade idea: BTP 2y1y towards 300bp

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