BTPs at Key Resistance Italian politicians are attempting to calm the markets.
Today this seems to be working, and driving risk-on.
Eyes on the key levels.
IT10Y trade ideas
BTP - Bearish Bias ContinuesAfter another negative close, stops can be trailed to 93.00 looking for 90.00 as a first target.
Keep an eye on the Italian political agenda and on risk aversion which seems to be creeping in.
BTP - Bearish Momentum Back in PlayYesterday we expected the Italian 10yr to break back through recent supports, after Conte's initial proposals on immigration, taxes, welfare seem to imply a decisive clash with Brussels. These measures would be good for the population, but EU will not allow them.
Further downside is expected and 90.00 is the first target.
BTPs - Downside Open for BusinessThe Italian Government has started it's fight against Brussels.
BTPs are responding and we may see further downside today.
Italian 10Yr - Supports being PressuredConte's League/MS5 Government would win a vote of confidence today.
A clash with Brussels is only a matter of time. Markets a little nervous.
A breach of key supports would open up the downside again.
Italian 10YR - Bias still short but 11th hour talks slow descentAccording to reports in Italian media, parties across the political spectrum are trying to reach a deal to avoid snap elections.
This has calmed markets for the time being, but price action is telling us this is just temporary.
10YR BTP - Strong Downwards BiasBig moves and volatility expansion in Italian BTPs on the recent political turmoil.
Bias remains down in the short term AND in the longer term.
Italian 10 yr yieldsIf I had to guess (I currently don't trade ITA bonds) over the coming year or so we are likely to see 10yr yields in Italy rise to around 3.8% based on EW pattern and inverted H+S.
10yr Italian Government Bonds: No Rest for the WickedItalian 10yr yields have just surpassed the 2.61% level. Bond are clearly in a free fall after the earlier breakout below ~100 earlier in May. The first target at 95.21 has just been surpassed, opening the road towards the secondary target at 90.18. Minor counter trend rally’s are allowed up to 98.65 without altering the highly bearish outlook.
IGBs look considerably worse than Spain, even though Spain and Portugal are playing some catchup.
Primary trend: negative
Outlook: highly negative
Strategy: hold-short / sell rallies
Support: 95.21* / 90.18-
Resistance: 98.65 / 102.60 / 103.10
Outlook cancelled/neutralized above 98.65
Italian Bonds: New Down Trend ExpectedCompared to other major European markets, the Italian Government Bonds (IGB) have been quite bearish over the past two/three years. The recovery in early 2017 has not really altered the general trend. Moreover, now that the recovery and ensuing consolidation has petered out, sellers should make a new push lower once support at 99.77 is taken out. Bearish pressure elsewhere should make this rather easy.
Clearing 99.77 triggers a sell signal targeting 95.21 followed by the major pivot-lows of 2017 at ~90.18. Interestingly, IGBs look considerably worse than Spain.
Primary trend: negative
Outlook: renewed down trend below 99.77
Strategy: hold-short and/or short-entry < 99.77
Support: 99.77 / 95.21* / 90.18-
Resistance: 101.60 / 103.10
Outlook cancelled/neutralized above 101.60
I love Italy, it's just their 10y bond I hate. (Short #BTP)Short BTP. It is just question of time to finish the "flag denial" on weekly.
Should the 2,25 - 2,35 % yield zone break, BTP mkt would be slaughtered. Look at the upside on the yield chart, and you will understand how bearish it can go: measured target would be around 3,80 %.
Again, burn it into your mind: bond markets are in danger rather than equities!
p.s.:
Before novice guys start asking stupid suestions: if you short bonds, you expect the yields to rise. That's why this post is marked as "Short".
French Election Fears To See HereThe spread between German Bunds and France or Italian Goverment Bonds are rising again.
On Monday, April 11th 2017 Goldman Sachs recommends a market bet as elections loom in France.
"We would expect French bond spreads (and yields) to come under upward pressure if the first round of the Presidential election were to result in a strong showing of anti-establishment parties," Goldman said in a note to clients.
This Chart is showing the bets against Europe via IT10Y-DE10Y. Traders might notice hat the spread now is higher than before December 4h 2016 (Renzi Constitutional Referendum.
BTP 10 YEAR YIELDSBTP ( ITALIAN GOVERNMENT BONDS) 10 YEAR MATURITY ON THE FACE OF A FALL FROM WHAT THE CHART SUGGESTS. THIS IS THE YIELD SO THE CASH WILL REFLECT THE OPPOSITE AND I HAVE SET A PENDING SELL AT A LEVEL ALREADY TESTED A FEW TIMES AND THE TICKER THERE IS IT10.
PLEASE COMMENT WHAT YOU THINK.
ITALY IS IN BIG TROUBLE AND I AM ASTONISHED THAT THE YIELDS ON ITALIAN PAPER ARE MERELY 2.356 FROM WAY ABOVE 6% IN 2012/13.
THOS COULD BE ONE OF THOSE BIG TRADES WHERE ONE CAN START SMALL AND ADD ON THE WAY. A 150 PIP STOP IS REQUIRED I SEE.
BTP ( Italian Government Bonds) 10 year maturity looking to crater off the precipice going by chart.This is the yield so the cash I tagged is where I set a pending order to sell the mid FED lows.
I don't have to remind you of the huge trouble Italy is in and am amazed that the yield on 10YR paper is only 2.356 when in 2012/13 it was around 6%.
Let me know what you think.
It will require a 150 pip stop I see. This could be one of those big trades where adding on the way and a fast with good RR.
The cash ticker is IT10
Bund/BTP trend intact, but momentum drops at key resistanceI closed all long Bund/short BTP spreads earlier last week as weekly chart was reaching key resistance at +200 bps. Weekly haDelta signals possible start of consolidation.
Given the daily Heikin-Ashi setup and MACD, it is possible that we'll see more pull back towards 170 bps+ support. At/below 180 bps spread we have to start looking for buy signal again, and get ready to reload the position optimally closer to 170 bps, IF technicals confirm
For new followers: please see all previous posts and explanation about this wonderful trade via link below.
Bye Italy, Buy GermanyAfter some noisy consolidation period in the daily Kumo cloud, Italian BTP is under selling pressure again. Obvious buy signals on both weekly and daily time frames now in favour of German Bund.
Wise to keep long Bund vs short BTP, as spread is likely to blow up to minimum 195-200 bps. While holding short German Bobl is probably a good idea too.
Note: I need to say thanks again to @NickGiva for his call last week! He is probably one of the best professional experts of bond trading and bond markets (besides many other things).
Which one to short more? BTP or Bund?This spread trade was one of the best setups in 2016. As we have more signals now that ECB will also normalise rates, it is time to review which one can be a better short: German Bund, or Italian BTP?
Fundamentally it is not a question. Italy has a huge and ever increasing debt, absolutely impossible to scale down, especially not until they are EUR zone members. Also if ECB starts normalizing rates, periferia bond spreads will widen again above Bund. This means in the long run BTP short can be more profitable.
Next question is when to weight more on BTP short rather then on Bund, or else when will be time to re-enter short BTP vs long Bund spread again? -> goto Ichimoku and Heikin-Ashi technicals to check
Weekly:
- breakout and blow up of the spread in late 2016 into Italy referendum. Since then we saw BTP consolidation and of course this pull back was helped by the very much behind the curve ECB.
- Trend is clearly up, Ichimoku setup is bullish, with Kijun support around 151 bps (1,51 % spread over Bund) -> technically we still have to focus on short BTP/long Bund position.
- However Heikin-Ashi signals possibly more spread compression down to 151 suport. Red candle and both haDelta and haOscillator point down.
- EWO is ticking lower and MACD crossed below its signal line: more consolidation is possible before next leg up later.
Daily:
- Ichimoku setup is NEUTRAL: everything is located in/at the Kumo cloud.
- EWO and MACD are absolutely neutral too.
- Not much to read from Heikin-Ashi either
This strengthens my view, that maybe we have to wait for clarity, or if we put the trade on, then we have to keep a wider stop and be extremely patient. It can take some more time before the next proper bullish signal comes (bearish BTP vs Bund).
In case the daily trend support breaks, and spread compresses below 150-155 bps, then we could see even more tightenning down to 140 bps based on the weekly picture. When to trade this?
1. Either dips get blocked around 151 and daily gives a proper buy signal
2. Or if it makes a deeper retracement to 140, watch for momentum exhaustion and buy signal there.
My preference is: keep outright short on 5y German BOBL, and try to do this short BTP/long Bund, but maybe with a bit more greedy focus on a setup around the 140+ bps level later.
Meanwhile in Italy... (BTP/Bund)Weekly:
Not much change, bullish consolidation right below key resistance zone of 1,35-1,40
Daily:
- Bullish Kumo breakout? Forward Ichimoku structure (both spot and forward components) has bullish bias. Note that both Kijun Sen and 100wma point up!
- Minor pull back seems to be over. Couldn't even reach 127-130 bps support. It looks like Mr. Market doesn't believe in a dovish ECB now.
Heikin-Ashi gives buy signal (DMO needs to confirm)
- MACD signal: consolidation
- EWO is bullish, histogram ticks higher
Please read my previous post too about Bono/Bund spread
Italy 10y vs Bund. Some spread re-compressionWeekly:
- Ichimoku setup is not yet bullish until the spread level can not break above Kijun.
- Resistance zone of 1,36 - 1,41 % marked by Kijun and horizontal lines held again. We saw only a temporary push to 140 bps.
- Heikin-Ashi signal suggests loss of momentum, possible start of retracement.
- Key support is around 123 bps (means Italy 10y bond yield 1,23 % above German 10y yield)
Daily:
- Ichimoku is neutral, as Price could not break out of Kumo. Setup of averages prefers buy on dips
- Heikin-Ashi swing sell signal.
- Possible supports are at 1,30 (Kijun) and 1,27 (100wma and forward Senkou B)
As you know, I've been out of the spread trade for quite some time. Since then I held individual outright shorts in both Bunds and Italian BTP, but closed all positions.
I expect a trade down to 127 bps, there I will think about buying Bunds vs selling BTP again.
Italy 10y BTP - The big short?These charts show the Italian 10y BTP bond yield over German 10y Bund yield, as a spread.
If ECB can not cause any more spread compression in Italy and in EUR periferia bonds in general, then what would?
Simply look at the left side. Weekly chart start to look horrible. I see a huge bowl, which will soon start to boil! Ichimoku setup is turning towards bullish. How bullish can it be? Just look back and see how bearish it was! Same can happen on the bullish side later this year. When I say bullish, that means bullish for the bond spread, a much higher yield over German Bund, so basically very BEARISH for Italian 10y bond.
The key yield spread level is very close! If it trades over 135-140 bps, Italin bonds will blow up, and the spread can easily go out to 255 bps! If some really big sht happens in Italy during the referendum they have in December, than the spread will blow to 340 bps, or even higher. Just remember how Greece was trading when they had possible situation to leave the Euro zone.
Some more fundamental thoughts:
1. Italy in general have a huge structural problem in their economy. While even Greece, Portugal and Spain managed to stabilise somehow their economies during last five years, Italy has not really achieved much. They stopped their fiscal deterioration, put serious control on tax revenues, but could not execute any major structural reforms.
2. Italy's debt to GDP is one of the biggest in the world. Debt level is over 132 % (!!!) of their gross domestic product, and no chance it could be cut any time soon.
3. They have a serious crises in banking system. In fact their whole zombie banking system is absolutely bankrupt, it's only the ECB who backs them and keep it alive. And guess who is holding the most of their huge debt, so their bonds? Of course their own banks.
4. Thes have always had their political turmoils in last 5 years. They might have another one this year too. PM Renzi called for a referendum, which will take place in December. This is about to open door for reforming the political systems (mainly about the veto right of Senate), and an absolute key to get athorization for economic reforms.
In case of a failure, the Government will step down, new elections will take place, where most likely EUR sceptic right wing could have high chance to win.
5. Now tell me how fckd up a bond market can be, where Italy's debt is valued less risky than USA??? I mean if you look only at the nominal spread of US10y/Bund and IT10y/Bund, those are appr. 170 bps vs 131 bps. :-) short term it looks funny, but long term it must be a bad joke. This is how much Central Banks' manipulations fckd up the bond markets valuation. Of course in case there will be the slightest chance Italy could fall out of EUR zone, this insanity will quickly normalise.
6. Finally think about what do you hold when you buy a German bond, and what do you hold through an Italian debt. Think in options! If you have a German 10y bond, even if you have negative yields, that contains a CALL option for DEM, in case somethiing really mad happens and Eurozone blows up. On the other side, if you own Italian 10y (or any other maturity) bond, there you have an ITL (Italian Lira) exposure. When you buy German Bund and sell Italian BTP over it, your synthetic option will be: Long Call DEM + Long Put ITL = Synthetic Long forward DEM/ITL.
How much do you think a DEM/ITL cross would move up after an Italy-Exit? Just try to compare it to USDRUB, USDTRY, USDZAR moves. My guess is the ITL depreciation would be minimum 50 %, if not 75%.
Obviously you pay the cost of holding this option through the difference between the yield curves roll downs and the forward yield spreads.
Should you have any questions or views in this topic, I am happy to discuss any time.
