10/30Y Bund spread has still some room to go

Over the last few days, the extra-long end of EGB curves has benefited massively of QE flows, with the extra-long of the EGB curves flattening sharply. 

The 10/30Y Bund spread has flattened massively. The 10/30Y Bund is trading around 47bp, 10/30Y BTP is at 89bp.

UniCredit Research notes in a report on Thursday:

• The 10/30Y movement on the nominal curve in the last few days was almost entirely due to a flattening of the 10/30Y on the real yield curve, which now is inverted by 5bp in the 10-30Y bucket. 
  
  
• QE flows will be massive compared to supply at the extra-long end of the Bund curve. According to our calculations, the Bunbesbank will purchase EUR 20bn at the 11-30Y, while issuance for the rest of this year at these maturities will be EUR 4bn. Therefore, the extra-long end of the Bund curve is the most likely to suffer from scarcity of bonds.
• Also the ultra-low yield at the 10Y tenor (which is unprecedented in history) favors more extension trades towards the extra-long maturities.