Quotes from UniCredit Research:- The outcome of today's Greek vote should favor risk-off, at least in the coming few weeks. As a result, the periphery is likely to be under some pressure. There are two reasons why we expect only moderate widening: first, this is a country specific issue and markets seem to understand this; second monetary policy should remain a key driver for the coming months and, with further easing in the pipeline, significant spread widening seems unlikely.- Looking at recent history, the 10Y IT-DE spread widened to 190bp (from 155bp) in late May, after a disappointing result on the European elections, and widened to 180bp (from 160bp) in early August following disappointing GDP reading in Italy. During the mid-October volatility spike, the spread widened 30bp, from 145bp to 175bp. – Spain outperformed Italy on all the three occasions. Looking at these recent episodes, a 20bp rise in BTP yields is a reasonable projection. Recent history also suggest that – staying long Spain vs. Italy in periods of periphery widening – should pay off.
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