Spanish yields will trade higher than BTPs in less than 2y. Thread

SPGBs started yielding less than BTPs in 2016. Italian politics failed to bring solutions to the crisis while Spaniards did a labor market reform (+competitiveness) and a restructuration of the banking system (Italian banks were ailing).

Exports boomed. Spanish growth was not a result of excesses like in the 2000s, it came with a current account surplus. Construction passed from 20% of GDP to 10% and Spain became the 2nd global infrastructure builder after China (US was 3rd)

Larger and healthier banks were lending. Consumption increased while Italians built inventorys, politics were not stable in Spain, but less caotic than the Italians.

In 2018, Spanish rating moved into single-A. Large foreign, buy&hold investors bought SPGBs - these became more stable, their beta diminished. Some talked about a new semi-core. Anti-EUR talk in Italy and Chineses causing a BTP selloff in May - more investors shifted into SPGBS

Today, politicians do not agree on a budget since 2018. Without agreement and projects, there is no EU money to be approved. The country issues debt at record low yields thanks to the ECB, but safe buy&hold players no longer like SPGBs

Little by little, SPGB's investors base is changing. Independentist forces and social division are increasing very rapidly, and the management of the covid crisis is increasing inequality at giantic steps. Reforms unwinding

Divisions in Italy are large, but they seem more united in this crisis. The government is able to reach agreements, pass budgets and agree on plans to present to the EU. Anti-EUR talking does not make headlines. Ratings are already low and there is not much to lose.

And equally important: Conte is likely to see the end of its term.

Short term this view will likely be wrong. Within 2y, it will likely be a reality