Halister News

(Bloomberg) -- Any sell-off in BTPs in the aftermath of Italy’s constitutional referendum would offer an opportunity to reset long positions into peripheral euro government bonds, Nick Eisinger, London-based strategist at Vanguard Asset Management, says in phone interview.

• Favors Italian vs Spanish bonds as BTP market offers better liquidity and has a more developed futures market
  • Doesn’t see the referendum, to be held this year, leading to any systemic issue for Italy as investors are getting used to dealing with the political uncertainty
• In event of “No” vote and PM Renzi stepping down, it remains unclear how the anti-establishment M5S party would have any major representation in any credible government in Italy
• Says Italy would be in “good company” if it issues ultra- long debt, as Spain did the same last May before holding general elections in June, and Belgium did as well
• “It’s unclear how much rally into the market you can extract from saying a government has been put together in Spain. The market doesn’t seem to really care,” he says
• Any 50-year bond issuance from Italy would probably meet good demand from investors
• Expects ECB meeting to have a broadly neutral outcome today and at the margin be negative for euro zone rates; says there could be a slight sell-off which is unlikely to last long
• Says if ECB turns out to be a marginally positive event today for euro zone rates, it would significantly increase chances of Italian Treasury issuing 50-year bonds, probably next week
• Doesn’t expect the European central bank to change any of the parameters that apply to QE program at today’s meeting, as there hasn’t been a deterioration in euro zone data lately
• Says if Draghi gives hints of a removal of the capital key anytime soon, it would trigger a rally in peripheral bonds; however, this scenario looks unlikely
• NOTE: ECB preview here
• NOTE: Italy said to be checking with investors on a 50Y bond, may come next week, WSJ reports; Natixis says Italy may face cold response for any 50-yr bond offer