Italian government bonds are not overvalued versus German peers, despite the substantial tightening in the BTP-bund spread during the past few months, says Dresdner Kleinwort strategist Marcel Bross. “In fact, our model renders BTPs on the cheap side versus bunds,” he says, adding that the major drivers of the BTP-bund spread argues for continued tightening. Therefore, Dresdner Kleinwort reiterates its recommendation to stay overweight BTPs at the expense of bunds, Bross says.