The Italian Treasury placed three and seven-year government bonds in the last auction, with considerable success. The demand allowed the three-year rates to move into negative territory, re-proposing the Italian alignment with the general European trend.

The image highlights Italian Government Bond 10yr - Daily bar chart updated October 13, 2020

InchCapital Platform – Italian Government Bond 10 yr – Daily bar chart updated October 13, 2020

In this respect, we have looked at the INCH platform, to understand the current trends of 10 yr government bonds all around the world, grouped by geo-economic areas and sorted by remuneration from lowest to highest without taking into account the exchange rate risk: to then conclude in strategic and trading terms on the current trend of BTP.

Eur/CHF area – Daily closures updated to October 13, 2020:

• BUND: – 0.5590%
• CHF: -0.47%;
• OAT: – 0.30%;
• BONOS: +0.1470%
• BTP: +0.6640%;

Asia/Pacific area – Daily closures updated to October 13, 2020:

• JPY: +0.026%;
• CNY: +3.2150%

U.S.A/U.K. area – Daily closures updated to October 13, 2020:

• T-NOTE: + 0.7290%
• GILT: +0.2340%

From this list, given that, we want to understand what the current and expected trend of the BTP (denominated in EUR), we can examine by INCH Platform the current m / l term trend of the EUR against: CHF, JPY, CNY and USD.
For the m / l term (weekly time series), the EUR is still strong against all the mentioned above main currencies: with the exception of the CHF which represents a particular refuge in its own right in the international context.

Returning therefore to the EURO area and excluding the two reference countries, namely Germany and France, we can ask ourselves: “is the difference in yield between BTP and Bonos justified”?

The answer is apparently no, because in absolute terms the Italian yield at the same maturity is 4.5 times higher than the Spanish one but if we look at the trend of the spread BTP (linear chart in black color) vs.  Bonos (linear chart in blue color) we can see that both have been constantly bought for months with momentum and trends that on average (note the indicator at the bottom of the graph) paradoxically seem to favor Bonos.

The image highlights daily time series spread IT10YR (in linear black color) versus ES10YR (in linear blue cloro)

InchCapital Platform – daily time series spread IT10YR (in linear black color) versus ES10YR (in linear blue color)

With regard to BTP, we note that the latest buy signal in terms of capital quote was objectively detected on Monday 8 June 2020 at 1.4130%, i.e. at the opening of the market following the first week in which the buy signal was highlighted: the performance currently it is approx. 53% in terms of interest rates.

InchCapital Platform – IT10yr weekly bar chart

Right now, the trade is still long with two alert levels, one tactical at 0.7950% and the other strategic at 1.0000%. Therefore, until we record readings above these thresholds, the long positions must be maintained with an achievable target in the 0.4150% – 0.2700% area.

www.inchcapital.com – Author Emanuele Cecere