The BTP could collapse by several percentage points-proiezionidiborsa.it
The BTP Bund spread today rose by 4.88% and returned to the 185 area. However, there is the bad signal that we had forecast for the BTP Future. Not bad, but if the reader will allow us, bad, really bad from a graphic point of view. If there isn’t a prompt reaction tomorrow, there will be blowouts for those with BTPs who trade and buy and sell them for the short term! Now the BTP could fall on deaf ears without a parachute! Alert for those who own them!
The ECB said it was ready to raise interest rates further in the coming months. The task of the central bank is to maintain monetary stability: inflation must be around 2%to prevent the economy from overheating or “cooling down”.
In such contexts, sovereign states such as Italy issue government bonds with different maturities to finance their debt. Among these are the BTPs or long-term Treasury bills, which have maturities of between 3, 10 and 30 years (the latter being the most bought and traded). The higher the rates, the higher the public debt becomesand if this is not balanced by economic growth and higher tax revenues, things could get complicated and not a little.
How multi-year Treasury bills work
They are issued at 100 and repaid at 100. Semi-annual coupons are provided which are in line with current interest rates.
Those who buy at 100 most of the time tend to keep until expiry. Some sell if the price rises much above 100, others buy when it drops below 100. Theirs will be an evaluation of convenience between the coupon and the maturity of the security.
For those who buy at 100 and wait for the expiry, make an assessment of convenience. Instead, those who buy and sell between the issue and the expiry are trading on prices. The problem is one and only one: if you buy a thirty-year BTP, above all, at 90 and this will then drop to 70. You could be stuck for a long time even with coupons that could be lower than the market. Adding insult to injury! Warning, even trading these government bonds could be as risky as buying and selling shares, especially if you are not aware of what you are really doing.
We come to the study of prices.
Now the BTP could fall on deaf ears without a parachute! Alert for those who own them!
We have written several times on these pages that the reference parameter of the BTP is the BTP Future. If the price goes up, the yield goes down, if the price goes down, the return goes up.
What do the graphs say?
For a couple of weeks we have been putting our attention on the 114/113.47 area. Today the Future closed at 113.94. StA powerful bearish swing has formed on the daily, and if the closing session on February 17th is lower than 113.47, it will probably be pain for those who buy and sell BTPs. Anyone who buys them at 100 and will bring them to maturity can sleep peacefully. Restless nights instead await those who have bought recently believing that the BTP would go up.
A closing on Friday 17 February below 113.47 would start a probable descent towards 108. Below 108 a double top would be validated (so says the classic technical analysis) with a goal by December towards 97! A drop from current levels of almost 15%.
We’ll see what happens between now and this Friday. Today’s spread sends a bad signal. We hope there is no perfect storm on ours Government, and we hope that it is carefully monitoring these events which could greatly influence the choices of economic policy, and the shooting that is in progress. Our memory goes to the Berlusconi government and then to Monti. Only political stability can get us out of this stagnation of the last twenty years! Make the Government work for years, whatever color it is! And if you allow me because it’s the one in progress: Come on Giorgia Meloni, revive the Italian miracle!
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