The cost of the recession

Markets are starting to weigh the risks of economic contraction

WHAT HAPPENS
The bond sector begins to make the crowding-out effect felt on equities due to the high relative yield.
In addition to BTPs, just think that today it is possible to buy bonds from Cassa Depositi e Prestiti (CDP), an almost sovereign entity, the "Bond CDP 2026" with a variable yield, with a three-year residual life, which offers an effective annual yield of 4,201 TP3T, at a premium of approximately 0.35% compared to the BTP with the same maturity.
Given the bond's essentially risk-free nature, the equity premium would have to go up a lot to be “par-level”. And that requires a correction in equity prices.

WHAT TO EXPECT
After the first signs of a decrease in inflation, less marked in the Eurozone, returning to the 2% target will not be so simple or painless.
This will require a rise in unemployment to pre-recession levels and effectively entering several quarters of negative GDP growth.
Furthermore, we believe that the equity sector does not price in a recession scenario or margin erosion consistent with a return to inflation targeting. Therefore, the reaction of stock indices could be more violent than usual, causing a sharp increase in market volatility.