Biggest Japan buying of Italian bonds since 2014
Head of Macro Analysis
Summary: Japanese investors bought into Italian government debt in a big way in June, increasing their portfolio holding by 327bn JPY, which is the largest net monthly increase since 2014.
Japanese investors bought into Italian government debt in a big way in June according to the latest figures released by the Japanese government. They increased their portfolio holding by 327bn JPY (roughly 2.6bn euros), which is the largest net monthly increase since the series began five years ago.
The Italian bond market remains attractive for investors. As a matter of fact, the risk of Italy leaving the EU is extremely low. Based on July Sentix survey of 1000 investors, only 4% of institutional investors and 9% of private investors consider that there is a real risk of Italexit within one year. In other words, the risk is virtually close to zero. Adding to that expectations of further ECB stimulus from September, it is not surprising to see the yields spread between Italy and Germany 10-year bonds narrowing to below 200 bps.
In addition, the search for yield in the low interest rate environment coupled with rotation out of German bunds have benefited to Italy. Contrary to many other European countries where the yield curve is negative up to 30 years for Germany or 50 years for Switzerland, it is only negative up to one year for Italy. The 2-year yield is at 0.15% and the 10-year yield at 1.45%.
The next release of purchases by the Japanese government will be on September 9th. We expect that some of the positive flows we have noticed in June should be reversed in coming months due to political tensions within the governing coalition and uncertainty about the Italian budget.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.