Top market experts at Europe’s biggest fund manager, Amundi, do not believe that the upcoming elections in Italy will trigger much volatility in Italian bond markets, although a spike could present a buying opportunity. Italy’s parliamentary elections are scheduled for the end of this week, Sunday 25 September.
Spreads between ten-year bond yields on Italian and German governments bonds have fluctuated between 200 and 250 basis points since May. On Monday, the BTP-Bund spread traded at 228 basis points.
“Our view on Italy, with the current spreads running at between 200 and 250 basis points, between ten-year Bund and ten-year BTP, is that it is rightly priced given the negatives and the positives,” said Amaury d’Orsay, head of fixed income at Amundi, during a media call last week in response to a question by Investment Officer.
‹European friendly’
“On one side, there is cautiousness on risky assets, which by definition is pushing spreads to be wider and wider between BTP and Bund for instance. On the other side, there is political uncertainty surrounding the elections of the 25th of September. But you can see as well that on the political sides, all the parties are quite European friendly, I would say, at the end of the day.”
Despite the fact that Prime Minister’s Mario Draghi’s government was forced to step down, d’Orsay said Amundi is encouraged by the general progress in European integration in the face of major political challenges in recent years. “What we see as well is a good momentum regarding European integration. We have seen it with the pandemic. We see it with the war. And clearly Itay is benefitting a lot from the European programme. That is one thing.”
‘Low’ positioning on Italy
Furthermore, there are few signs that market players are trying to position themselves in a certain way ahead of the elections. “Overall, the positioning on Italy is low. People are overall quite cautious, which means that there is no specific niche in the BTP market,” he said.
Any spike in the bond market, with BTP yields moving above 300 basis points for example, would be “a buying opportunity” for Amundi, said D’Orsay.
Vincent Mortier, Amundi’s chief investment officer, added that the Italian government debt market is increasingly becoming a domestic market. “More and more the BTP market is becoming a domestic market,” he said. “We see more and more buyers in Italy of Italian debt, in particular in retail. Banks are pushing it a lot. So it seems a regional factor.”
What’s more, the ECB’s determination to support Italy is something to reckon with. “We should not underestimate the resolve of ECB to avoid fragmentation,” Mortier said. “When and if spreads will be tested on the upside, we can have some interventions to calm down the market. So that’s why 300 bps is a clear buy signal for us.”
“The fundamentals for Italy are quite good,” added Amaury.