Trade Idea - Italian bonds: low yields portend rising deflationary risks

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Italian bonds: low yields portend rising deflationary risks  

Summary 

  • The discount of Italian BTPs over US Treasuries is driven by disinflation, not improved creditworthiness. CDS spreads suggest credit risks remain above pre-crisis levels.
  • Italy’s economic stability is at risk, and until the ECB’s targeted loans program starts to support Italy’s SMEs, deflationary risks could undermine sentiment on BTPs. 
  • The May sell-off in BTPs on slumping Q1 output suggest bond investors are jittery. It offers investors a perspective on considering shorting BTPs as macro data may disappoint.
  • Investors who share this sentiment may consider the following Boost ETPs: (www.boostetp.com/products)
    Short Italian government bonds:

    Boost BTP 10Y 3x Short Daily ETP (3BTS)

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Kind regards,

Boost ETP Research

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