Investor risk sentiment turns bullish on Italian election results

Mohammed Kazmi, Portfolio Manager for the Absolute Fixed Income team at UBP, comments on the Italian regional elections…

“The strength of PD’s performance in the Italian regional elections this weekend has reduced the probability that we head to snap elections. January was being cited as a key month in determining whether we would head in this direction given the numerous risk events that took place, with the coalition proving resilient and ending the month crucially still intact. As such, we think that the political overhang that had been weighing on BTP spreads has finally been removed, which will allow for investors to allocate risk here once again. This should allow for the positive momentum that we have seen in spreads this morning continue as investors re-engage. 

“We have held an overweight exposure to Italian sovereign spreads ahead of the elections on the back of attractive valuations compared to the rest of the periphery, support from ECB asset purchases and with growth in the region appearing to stabilise. This weekend’s result has further affirmed our positive bias here.”