BTP: half disaster, Spread holds. Here’s what to expect

What to prepare for ?, PUBLISHED:

Estimated reading time: 4 minutes

by Davide Pantaleo


BTP Spread Bund BCE

BTPs were hit by strong sales, with a 10-year rally driven by the American one, to new 2021 tops. The scenarios expected by analysts.

Another session marked by strong tensions on the bond markets of the two opposite sides of the Atlantic.

Italy obviously did not remain immune and was affected by the surge in yields, driven in particular by the rate hike in the United States.

BTPs under pressure, rates soar. Spread slightly up

The BTP-Bund spread showed a rather composed trend, so much so that at the end of the day it stopped at 96.5 basis points, with an increase of 0.52%, below the intraday tops reached at 99 basis points.

Strong sales on BTPs which continued to lose ground heavily, as evidenced by the rally posted by the 10-year yield, which jumped from 6.93% to 0.694%.

BTPs sunk by US rates. T-note yield on new 2021 tops

As anticipated earlier, the rate hike was driven by the rise in 10-year government bond yields, which have reached their highest levels for over a year.

Fueling this trend is the optimism linked to the vaccination campaign in the United States, where the pace is faster than in Europe.

This is enough to induce a bet on an economic recovery and therefore on a possible acceleration of inflation which is reflected in a rapid rise in government bond rates, both in the United States and in Europe.

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As explained by the strategists of MPS Capital Services, the rise in Treasury rates is also being reflected in the rates of Eurozone government bonds, which however are still far from the highs.

This is due to the expectation of an increase in ECB purchases which should appear starting next week.

BTP and Spread: JP Morgan still sees pink. The catalysts in the short term

The dynamics linked to the purchases of the Eurotower are one of the factors underlying the positive view of JP Morgan which still sees narrowing spreads in the euro area.

The US bank analysts explain that among the positive short-term catalysts for European government bonds are the lower supply pressure, the issuance of negative net bonds even before the ECB purchases in April and the potential shopping by banks. Japanese investors at the start of the new fiscal year in the Asian country.

Undoubtedly, the key discriminant will be the ECB which, according to ABN Amro experts, will have to intervene more decisively if it actually wants to pursue the objective of lowering the yields of government bonds in the euro area.

The even more significant intervention by the ECB will undoubtedly be in support of the Italian charter, as highlighted by MPS Capital Services, whose strategists expect it to remain well supported.

BTP and Spread: MPS Capital Services forecasts

According to the experts, for the BTP-Bund Spread there is still room for maneuver to the downside and the idea is that it can drop to area 75 basis points, helped by the expectation of a further increase in excess liquidity.

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BTPs should also perform well and according to MPS Capital Services the 10-year rate should move in the trading range between 0.5% and 0.9%.

Trend-online Deputy Director, born in 1978.
After completing his studies at the Classical High School “Antonio Calamo” of Ostuni I entered the world of economics.
For about twenty years I have been dealing with Stock Exchange and Finance. After having worked as a financial promoter for several years, in 2005 I joined the Trend-online team as an editor, to later become deputy director of the cylinder head. Among other countless activities, I deal with maintaining relationships with all the experts, analysts and traders, consulted daily by Trend-online.

My motto is? “Life is like a mirror, if you look at it smiling it will smile at you”.

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