(Finance) – With Bunds likely to register a subdued performance, investors will look to exploit more profitable opportunities in 2025 in the bond. This would be in line with the resumption of carry trade activity (buying high-yielding securities) already observed this year. We read it in “The Compass 2025” by UniCreditwritten by the new Group Investment Strategy team, which presents a comprehensive overview of the economic forecasts and key financial implications.
“The strong interest in peripheral government bonds has reduced yield differentials compared to Bunds, thanks to ongoing disinflation, lower volatility, favorable budget prospects, above-average growth rates and the stability of the political framework, especially in Italy – we read in the report – Fa France, on the other hand, is an exception, affected by the weakening of macroeconomic fundamentals and political uncertainty”.
UniCredit expects that the demand for Italian government bonds will remain strong in 2025supported by a stable political context and the ongoing consolidation of public finances. He estimates that the 10-year yield spread between Italian and German bonds remains in the rangerange between 120 and 140 bpsas the positive factors will be partly offset by substantial issues, mainly due to maturing bonds.
On the other hand, “le prospects for French government bonds are not encouragingmainly due to political instability and rating risks”, is highlighted. While there could be tactical buying, investor concerns will keep the 10-year OAT-Bund spread around 70 bps. UniCredit therefore prefers BTPs to OATs , since the former offer a more interesting initial level of return which should also represent a natural buffer in the event of a rise in yields 50% of the entire French public debt is in the hands of foreign investors (compared to 25% in Italy) is another important element given that these tend to be very sensitive to changes in the economic fundamentals of a country.