The hot summer of the BTP: back to buying abroad
The amount of Italian government bonds held by foreign investors it jumped in April after the decline recorded in March. Bank of Italy reported that foreign positions increased by 15.4 billion euros after -3.8 billion in March. Foreign investors seem oriented to increase their presence on Italian debt, attracted by high yields and reassured by the good performance of growth … This is confirmed by the fall in the spread from 195 to 161 points in one month. Such a low level has not been seen for at least a year. A sign that the Meloni government is no less reliable for the markets than the one led by Mario Draghi.
The yield of the ten-year BTP now settles at around 4.05%, on the lows of the last two months. The benchmark government bond of Italian public debt closed last week with an increase of 0.7%, which compares with -0.8% of the German bund with the same maturity and -0.3% of the Treasury Note.
The Btp/Bund spread narrowed to around 163 points, the lowest level in the last 12 months. The peak of 2023 was reached in the first few days of the year at 210 basis points.
The appeal of our government bonds has grown both in absolute terms (success of the BTP Valore auction) and in relative terms thanks to the reduction in the premium required for the purchase.
The Bank of Italy has raised its GDP estimates
Much trust is based on data from the economic system. The Bank of Italy has raised its 2023 GDP estimates for Italy to +1.3%, while it has trimmed its growth estimates for 2024/2025 to +1%/+1.1%.
Waiting for the release of the disbursement of the third tranche of the PNRR scheduled for the beginning of 2023 for 19 billion and which, according to the latest rumors after the visit of the EU technicians, should take place by the end of June.
Positive tone also on the 16 billion tranche based on the achievement of the 24 targets envisaged for the first half of the year: the Italian government is late and some steps could be postponed also on the basis of the more comprehensive revision of the PNRR with the government is committed to submit by the end of August
Waiting for the projects financed by the Pnrr
It must also be said that the increase in GDP in 2023 is linked to the sustained performance of services. Important evolution of PNRR che currently has little effect on economic growth due to the delays accumulated in the grounding of the projects financed by the plan. In this context are also intertwined the approval of the MESwhich at the moment does not seem to cause concern at European level, and the definition of the new terms of the Stability Pact with a comparison between the divergent positions of Germany and France: Germany would like to introduce the obligation of a minimum adjustment of 1% to the year of debt in the event of a deficit exceeding 3%, while France is against any automatic mechanism that could lead to pro-cyclical effects of the measures.
In view of a further rise in prices
From a graphic point of view, the 4-5% yield range has systematically initiated a decisive reaction, confirming itself as a discriminating level of extreme value. The succession of yield cuts since the peak of a year ago at 4.92% argues in favor of a further rise in prices. An important sign of reversal (ie a decline in yields) would come with: 1) the drop below 4% of yield; 2) the drop below 3.59% yield, the minimum in August. Yields above 4.0% can be systematically exploited to build a position on BTPs over the long term. Signs of strength, to be accompanied by increases in positions on ten-year BTPs, in the event of a downward breakthrough of the 3.50% yield area.