The first investments into Italian government bond ETFs this year were recorded over recent days and have been linked to Italy’s upcoming general election.
Investors have poured €181 million into Italian government bond ETFs since February 14, according to TrackInsight data, reversing outflows seen in January and early February.
TrackInsight, which provides ETF data and rankings, said investors were “snapping up” ETFs with exposure to Italy’s government debt on expectations of further falls in spreads.
Italian ten-year bonds saw yields drop below the 2% mark in recent weeks and then crossed 2% again during a volatile run, according to the firm.
Luca Colussa, macro analyst at Generali Investments, said the ten-year BTP-Bund spread widened by around ten basis points last week and “some further widening ahead of the vote looks possible”.
Italian sovereign yield spreads over German bunds are one of the highest in the Eurozone due to concerns about political and economic uncertainty, said Robert Lind, economist at Capital Group, although he noted the economy had been performing “relatively well” with 1.5% GDP last year.
But another factor in spreads is the European Central Bank (ECB), which acts as a “backstop” for Italian yields rising too high.
Willem Verhagen, a senior economist at NN Investment Partners, wrote: “At any rate, we expect the ECB’s policy normalisation to be very gradual and the large stock of Italian bonds on its balance sheet should help in preventing Italian spreads from rising too much.”
TrackInsight said the demand for Italian bonds suggested investors were “unperturbed” by political tension ahead of the Sunday general election.
Meanwhile, TrackInsight’s data also shows that as investors placed money in bond ETFs, there have been withdrawals from Italian stock market ETFs. Total outflows were €210 million between the start of the year and Friday February 23, even though returns were higher than from bonds (2.46% vs 0.16% year to date).
The election will be a three-way battle between the centre right led by Silvio Berlusconi, the centre left led by Pier Luigi Bersani and the anti-establishment Five Star Movement headed up by Beppe Grillo.
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