What is about to happen on the BTP italiani-proiezionidiborsa.it
The BTP Bund spread closed last week close to 184.28 points up 1.57%. The target continues to remain area 210, except that it will return below area 180 at the weekly closing. Meanwhile, the BTP future continues to signal negative divergences. What is about to happen on Italian BTPs?
The ECB recently raised interest rates to 3%, but has paved the way for further hikes over the next few months. What does this mean? That the new BTP issues will have a higher yield (higher coupon) than the last ones, and that the current issues will see their price fall below 100 in a more or less direct proportion. Basically, the old issues will adjust their yield at current interest rates.
A simple explanation of how things work
Therefore, those who want to buy BTPs and keep them for example at 10 years could wait for further rate hikes, or always buy BTPs in progress at that time that have seen their price fall. Today, those who buy BTPs are only those whose current yields meet their economic needs.
More or less, there may be a small percentage of difference, old-issue BTPs and new-issue ones have the same yield. All those who believe differently live in the world of toysand they will soon be getting some serious beatings, if they haven’t already.
Let’s take a practical example to give an idea by immediately stating that it is not precise to the thousandth:
Newly issued BTP with 1% coupon, 10-year maturity
Rates from 1% rise to 2%, and therefore the BTP from 100 drops to about 90 because it has to adapt. Whoever buys at 90 or whoever buys a newly issued BTP will more or less obtain a yield of 2% per annum.
Readers should know that in finance nothing is destroyed, but wealth passes from one subject to another, and this example just given is proof of this.
We come to the study of prices.
What is about to happen on Italian BTPs? That’s why we couldn’t joke from next week
The further most important dates of the year will probably be March 7th, June 26th and then November 8th. The BTP parameter is the BTP Fututre: if prices go up, the BTP courses go up and yields go down. Conversely, if it goes down, the price of the BTPs goes up and the yield increases.
What do the graphs say?
The Future closed last week at 114.97. The ongoing daily, monthly, quarterly signal is bearish. This means, as explained above, that an increase in yields is discounted, and therefore a decrease in the prices of the BTPs. Ergo, according to the chart patterns, the new issues should have a higher coupon, etc., etc..
The context is still the same indicated in recent weeks: BTPs could still lose 10%. According to the technical analysis, what could prevent this scenario? A February or March BTP Future close above 119.17.
In the short term, a daily close above 116.33 would drive prices higher. A closing on Friday 17 February below 113.47 would start a probable descent towards 108.
Attention, if the yields of the BTP increase, our public debt increases, because the Stao should pay more interest.
In this case, what should the Government focus on? To economic growth, because more taxes would enter the coffers, and therefore the debt would be bearable. Imagine if the opposite happened!
