Italy Banks’ Exposure to Government Bonds Rises in June – Central Bank

By Manuela Mesco

MILAN–The total value of government bonds held by Italian banks until the end of June rose to 316.1 billion euros ($392.18 billion), compared with EUR302.5 billion in May, the Bank of Italy said.

Banks’ bond holdings portfolio as of end-June comprises EUR170.7 billion of conventional fixed rate Treasury bonds, or BTPs; EUR57.2 billion in Treasury bills, or BOTs; EUR50.29 billion in floating rate notes, or CCTs; and EUR28 billion in zero-coupon notes, or CTZs, plus around EUR10 billion notes of minor value, the central bank said Wednesday.

A greater exposure to government bonds means a higher risk for banks as they are more closely connected with Italy’s troubled economy. Also, the notes have lost value as the euro-zone debt crisis has deepened.

Write to Manuela Mesco at manuela.mesco@dowjones.com

Last Call for Treasury-Bond Holders: Get Out Now

by Alexander Green, Investment U Chief Investment Strategist
Friday, August 3, 2012

The Wall Street Journal made an interesting observation recently, “Treasury bonds are priced for the end of the world.”

It was a news article, not an opinion piece. But it happens to be the viewpoint of virtually every investor with half a brain – or a modicum of common sense. A few months ago, for instance, the world’s best-known investor, Warren Buffett, wrote in his annual letter to shareholders, “Right now bonds should come with a warning label.”

Yet I routinely talk to investors who still don’t get it. Treasuries are safe they tell me. And the historical returns are quite good, especially compared to the pittance money markets are paying.

Both of these statements are true. But it still makes little sense to plunk for 10-year bonds that pay 1.5% or 30-year bonds yielding 2.5%. And if you’re holding an investment-grade bond fund whose yield is much higher than this, you really need to hit the exit in a hurry. Here’s why…

The World is Not Ending

Let’s start with the fact that Treasury yields are at all-time record lows. Why is this? Inflation is modest. Uncertainty is high. The U.S. may sink back into a recession. The wheels may come off the euro. Uncle Sam seems like a safe bet.

And from a credit standpoint, U.S. Treasuries – even without their vaunted AAA rating – are indeed among the world’s safest securities. Sure, a few blue-chip companies have higher credit ratings. But that could change. Plus, they aren’t able to crank up the printing presses to repay their corporate debt. And some other countries have been fiscally responsible enough to maintain their AAA ratings. But most don’t have the economic strength, political stability, or military might to attract large capital flows.

Lend the U.S. government money and, yes, it will certainly pay you back. But two dangers loom: inflation – the great bugaboo of bond investors everywhere – and, ahem, the world’s not ending.

Let’s take inflation first. Consumer prices are fairly low, unless you’re looking at healthcare costs (or health insurance premiums) or putting a kid through college. The CPI was 1.66% for June, down from 3.56% a year ago. That trend could easily reverse, however.

Oil, for instance, tumbled more 20% in the first half of the year. But it has moved back up almost as quickly lately. If inflation ticks higher, bond prices will sink lower. Even a half-point rise in inflation could cause 10-year Treasuries to fall 5%. And that might be just the beginning. If you don’t know what happened to bond prices in the early 80s, you owe it to yourself to learn what happens to fixed-income investors when inflation and interest rates suddenly move higher. It’s not pretty…

“If It’s in the Papers, It’s in the Price”

Then there’s that matter of the world not coming to an end. I hear investors recite a litany of woes that beset the global economy today. But every one of these things – anemic GDP growth, currency problems in Europe, the already leveraged consumer, and so on – are already priced into stocks. As the old Wall Street saw reminds us, “If it’s in the papers, it’s in the price.”

As for those bond funds that, despite their high expenses, sport hefty yields, look out below. Many of them are highly leveraged – the bond equivalent of buying stocks on margin – and when bonds head south their shareholders will get routed.

It hasn’t happened yet. But it almost certainly will. In the meantime, with inflation at 1.6% and 10-year yields at 1.5%, bond investors are already earning a real negative return on their money.

What’s the point of owning an investment with very little upside potential and huge downside risk? Govern your portfolio accordingly.

Good Investing,

Alex

Italy Sells EUR2.5B 2014 CTZ, Yield Up; Near Maximum Planned BTPei

DOW JONES NEWSWIRES

The Italian Treasury sold the maximum targeted EUR2.5 billion of zero-coupon bonds, or CTZ, at an auction Tuesday, the Bank of Italy said, paying rising borrowing costs versus the previous tender.

It also sold EUR943 million, near the maximum targeted amount, in two Treasury bonds indexed to inflation, or BTPei, it added.

The Treasury planned to sell EUR1.5 billion to EUR2.5 billion of the CTZ, and a combined EUR500 million to EUR1 billion of the two BTPei.

All three bonds are reopenings of issues, launched in 2012, 2006 and 2008, respectively.

The following are details of the auction, with amounts in euros. Figures in brackets show data from the previous auction held March 27, 2012, May 27, 2010 and March 27, 2012, respectively.

 
Issue                  24-month zero-coupon notes 
Maturity               Jan. 31, 2014 
Amount on offer        1.5 bln-2.5 bln 
Bids received          4.489 bln 
Bids accepted          2.500 bln 
Bid-to-cover ratio     1.80       (1.86) 
Yield                  3.355%     (2.352%) 
Assignment price       94.370     (95.810) 
Settlement date        April 30, 2012 

Issue                  five-year BTPei 
Maturity               Sept. 15, 2017 
Coupon                 2.10% 
Bids received          1.067 bln 
Bids accepted          501 mln 
Bid-to-cover ratio     2.13       (1.68) 
Uniform yield          3.88%      (2.04%) 
Uniform price          91.62      (100.45) 
Settlement date        April 30, 2012 

Issue                  seven-year BTPei 
Maturity               Sept. 15, 2019 
Coupon                 2.35% 
Bids received          989 mln 
Bids accepted          442 mln 
Bid-to-cover ratio     2.24       (1.91) 
Uniform yield          4.32%      (3.06%) 
Uniform price          87.90      (95.45) 
Settlement date        April 30, 2012 
  -By Emese Bartha, Dow Jones Newswires; +49 69 2972 5516; emese.bartha@dowjones.com

ORO – L’analisi tecnica di Websim

FATTO
L’oro perde l’1,7% a 1.651 dollari l’oncia, livello che non vedeva dallo scorso 19 gennaio.

A indebolire le quotazioni del metallo prezioso per eccellenza è la crescente convinzione che la Federal Reserve non lancerà un nuovo piano di stimolo all’economia (QE).

Le migliorate condizioni dell’economia americana e in particolare del mercato del lavoro rendono meno pressante la necessità che la Banca Centrale americana riacquisti Treasury bonds dal mercato per iniettare liquidità nel sistema finanziario.

Nonostante tutto, secondo molti esperti le quotazioni dell’oro potrebbero raggiungere nuovamente i massimi storici intorno ai 1.900 dollari l’oncia entro la fine dell’anno grazie agli acquisti delle banche centrali e dei consumatori in genere dei Paesi emergenti.

EFFETTO
Graficamente, i prezzi dell’oro si trovano ora in un “territorio pericoloso”, dopo il cedimento della media mobile a 200 giorni (circa 1.680 usd) e suggeriamo prudenza nell’operatività di breve.

Collochiamo gli acquisti per trading solo verso i supporti statici a 1.620 usd e successivamente a 1.530 usd (vedi Focus) per sfruttare eventuali rimbalzi verso 1.780 usd. Stop loss rigoroso sotto 1.475 usd ceduto il quale il quadro di medio/lungo periodo cambierebbe in negativo.

Avvisiamo coloro che seguono i nostri portafogli ETF che a partire da domani alleggeriamo il peso percentuale sull’oro. Dettagli nella sezione ETF Portfolio.

Italy Funding Costs Drop, Sells Maximum Planned EUR6.25B BTPs

DOW JONES NEWSWIRES

Italy paid sharply lower yields Tuesday to sell the maximum desired EUR6.25 billion in treasury bonds, or BTPs.

The 2017-dated bond is a reopening of an issue in 2012. The 2022-dated BTP is a new issue.

Bund futures remained largely unchanged when the results came out, remaining around 139.63, down 0.11.

Following are details of the auction, with amounts in euros. Figures in brackets are from the previous auction on Jan. 30.

 
Issue                  five-year BTP 
Maturity               May 1, 2017 
Coupon                 4.75% 
Amount on offer        2 bln-2.5 bln 
Bids received          3.531 bln 
Bids accepted          2.500 bln 
Bid-to-cover ratio     1.41       (1.30) 
Uniform yield          4.19%      (5.39%) 
Uniform price          102.79     (97.40) 
Settlement date        March 1, 2012 

Issue                  10-year BTP 
Maturity               Sept. 1, 2022 
Coupon                 5.50% 
Amount on offer        3 bln-3.75 bln 
Bids received          5.260 bln 
Bids accepted          3.750 bln 
Bid-to-cover ratio     1.40 
Uniform yield          5.50% 
Uniform price          100.58 
Settlement date        March 1, 2012 
 -By Emese Bartha, Dow Jones Newswires; +49 69 2972 5516; emese.bartha@dowjones.com

Pimco’s Gross Joined Treasury Bull Camp In January

 By Min Zeng 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Bill Gross, manager of the world’s biggest bond fund, entered the year 2012 with new mantra–Treasury bond bull.

Gross, co-chief investment officer at Pacific Investment Management Co., boosted Treasury bonds holdings for a fourth straight month in January at Pimco’s flagship $430 billion Total Return Fund (PTTRX). The holdings rose to 38% of the fund’s holdings in January from 30% in December, according to data released on the company’s website.

That was more than 35.23% required by the benchmark index–the Barclays Capital US Aggregate Bond Index–at the end of January, a sharp reversal from last year when at one time he completed dumped all of the fund’s holdings of Treasurys.

After ill-timed bets early last year wagering on price declines in Treasurys, Gross has reversed his strategy over the past few months by buying Treasurys and mortgage-backed securities. The moves reflected his views that the Federal Reserve’s unconventional monetary-stimulus programs would keep bond yields, which move inversely to their prices, at relatively low levels.

Meanwhile, Gross raised the fund’s holdings of mortgage-backed securities to 50% in January, from 48% in December, 43% in November and 38% in both October and September.

Mark Porterfield, a spokesman of Pimco, said the company doesn’t comment on fund holdings.

Tom Roseen, research analyst at Lipper, said the buying in Treasurys signaled Gross fixed his mistake and adjusted his strategy.

But Roseen added that for coming months, Gross would be better off keeping Treasury holdings close to the benchmark rather than a significant overweight stance because Treasury yields trading at such meager levels have little room to fall further. Bond prices rise when yields fall.

“He may stand pat on Treasurys and make nimble moves in picking high-quality assets outside the Treasury market to get return,” he added.

Indeed, after posing a near 10% return last year, Treasury bonds have handed investors a loss of 0.4% this year through Wednesday, according to data from Barclays.

But the fund’s performance showed Gross’s strategy in buying Treasurys and MBS has worked well so far.

Gross’s fund handed investors a return of 3.46% this year through Wednesday, beating the 0.55% on the Barclays Capital US Aggregate Bond Index. In 2011, stung by the sour bets on Treasurys, the fund posted a return of 4.16%, far below the 7.84% result for the benchmark index.

Pimco, part of Allianz SE (ALV.XE, ALIZF), is one of the world’s biggest asset-management companies, with more than $1 trillion in assets under management.

-By Min Zeng, Dow Jones Newswires; 212-416-2229; min.zeng@dowjones.com

TABLE-Details of Italian bond auction

MILAN, Jan 26 (Reuters) – Italy’s Treasury sold the following Treasury bonds at auction on Thursday: 24-MONTH ZERO-COUPON CTZ BONDS DUE JAN. 31, 2014, 1ST TRANCHE

26/1/1228/12/11 (*)
Gross yield 3.763 4.853
Assigned price 92.870 92.063
Total bids 7.712 bln 3.875 bln
Assigned 4.500 bln (**)1.733 bln
Bid-to-cover ratio 1.714 2.24
(*) Compares to seventh tranche of CTZ bond maturing on Sept. 30, 2013
(**) The sale had been announced for between 3.5 billion and 4.5 billion euros.

Details of theauction can be found on page <BITQ>
OFF-THE-RUN INFLATION-LINKED BTPEI DUE SEPT. 15, 2014, 9TH TRANCHE
26/1/12
Gross yield 3.20
Assigned price 97.45
Total bids 1.396 bln
Assigned 0.5 bln
Bid-to-cover ratio 2.792
Details of the auction can be found on page <BANKIT12>

(Reporting by Milan Newsroom) Messaging: valentina.za@thomsonreuters.com)

MARKET TALK: U.S. Summary

2241 GMT [Dow Jones] U.S. SUMMARY: The EUR/USD rose but ended the session well off its highs of the day as investors were skittish about extending a rally much beyond $1.28. The rally came on upbeat economic data out of China and Germany and well-received auctions for short-term bills in Europe. North American traders immediately seized on those gains, however, and moved it lower. “There’s room for more downgrades of European banks and the people are using any pop in the euro as an opportunity to sell,” says Todd McDonald, head of foreign exchange trading for the Americas at Standard Chartered Bank. Late Tuesday, the EUR/USD traded at 1.2737 vs 1.2666 late Monday, the EUR/JPY was at 97.86 vs 97.25, the USD/JPY was at 76.83 vs 76.78, the USD/CHF was at 0.9495 vs 0.9543, and the GBP/USD was at 1.5330 vs 1.5337. The ICE Dollar Index was at 81.120 vs 81.515. Stocks gained as investors reacted favorably to economic data in the U.S. and overseas, though weakness in financial stocks limited the advance. Venoco soared 30% after the company agreed to be taken private in a deal valuing it at roughly $735 million. Citigroup lost 8.2% after posting an 11% drop in 4Q profit. J.P. Morgan Chase fell 2.8% and Bank of America lost 2%. The Dow rose 0.5%, and the Nasdaq added 0.6%. Treasury bonds initially fell but then rebounded as investors worried about Europe; the 10-year yield fell 0.5 bp to 1.848%, while the 30-year fell 1.5 bps to 2.889%. Oil futures finished above $100/bbl, lifted by brisk economic growth in China and steps toward an Iranian oil embargo in Europe; Nymex February crude settled up 2% at $100.71/bbl. Gold futures rose as slowing economic growth in China led investors to bet the country would take steps to ease its tight-credit policies, spurring demand for precious metals as a store of wealth; Comex gold rose 1.5% to $1,655.60/oz. (lucy.craymer@dowjones.com)

MONEY WEEK AHEAD: TIPS Gaining Favor; Fed QE Chatter Builds (oh oh… QE… dollar bulls beware!)

By Cynthia Lin
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–U.S. inflation isn’t near the top of investors’ worry list, but an often-overshadowed subset of Treasury bonds designed to beat inflation is still among the best bets in the market.

Government paper called Treasury Inflation Protected Securities, or TIPS, are drawing investor interest for two key reasons: their reputation as an ultra-safe asset, and their potential returns, which are low-yielding but can help market players ride a potential upswing in the U.S. economy.

A $15 billion auction on 10-year TIPS this coming Thursday, the first such sale of the year, is expected to draw plenty of interest.

“I like the TIPS market a lot more than the nominal market,” said Ray Humphrey, fixed-income portfolio manager at Hartford Investment. He said short-dated TIPS are a good buy because they’re underpriced, and it would take significant disinflation over the next couple months to put a damper on their appeal. Last month’s five-year TIPS offering saw strong interest, going off at a record-low yield.

Adding to this sentiment, some analysts are actually saying small doses of inflation could come in the mid-term because there’s been a run the past several weeks of stronger-than-expected U.S. economic data. Most analysts also expect the Federal Reserve to introduce another round of quantitative easing later this year, which would lead to higher inflation expectations.

TIPS as long as 10 years in maturity are currently offering negative yields, but historically low Treasury yields–after accounting for inflation–are also negative. This gives TIPS a leg up because they’re built to take advantage of possible upticks in inflation. Their returns are adjusted for headline consumer prices, so their value goes up as the CPI rises. Regular Treasurys, meanwhile, depreciate in value as inflation increases because they’re a fixed income stream.

Surging energy prices early last year and the Federal Reserve’s ongoing easy monetary policy helped TIPS outperform in 2011, when they handed investors 13.56% in returns, according to the Barclays Treasury inflation-linked index, compared to 7.84% for the nominal Treasurys market. The difference between yields on a regular Treasury note and a similarly dated TIPS note is called the breakeven rate. The breakeven for 10-year paper, for instance, is currently about 2.01%–that means investors expect a 2.01% annual rate of inflation over the next decade.

Chirag Mirani, inflation-linked strategist at Barclays Capital, sees “a lot of value” in the long end of the market. He cites the 30-year breakeven rate of 2.15%, which he says should be closer to 2.4%.

The Credit Suisse interest-rate research team recommends buying these breakevens with the expectation that they’ll move higher later this year. Jonathan Lewis, founding principal and portfolio manager at Samson Capital Advisors, also said breakevens look low given the recent firmer economic data.

Renowned bond guru Bill Gross, who manages the world’s largest bond fund at Pacific Investment Management Co., recently said he likes long-dated TIPS as a means of protection against the Fed’s unprecedented series of stimulus programs that’s poured trillions of dollars into the economy. The excess cash spurs inflation because it debases the value of the currency.

The coming holiday-shortened week will provide the latest read on U.S. consumer and producer prices from December. The consumer price index will be released Thursday, ahead of the TIPS auction, while the producer price index is due Wednesday.

“The reality is that I’m a bit more positive on growth,” Hartford Investment’s Humphrey said. Even so, “the Fed has been telling you ‘I don’t care what the data is telling you, we’re keeping the policy rate low.'”

-By Cynthia Lin, Dow Jones Newswires; 212-416-4403; cynthia.lin@dowjones.com

MONEY WEEK AHEAD: TIPS Gaining Favor; Fed QE Chatter Builds

By Cynthia Lin
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–U.S. inflation isn’t near the top of investors’ worry list, but an often-overshadowed subset of Treasury bonds designed to beat inflation is still among the best bets in the market.

Government paper called Treasury Inflation Protected Securities, or TIPS, are drawing investor interest for two key reasons: their reputation as an ultra-safe asset, and their potential returns, which are low-yielding but can help market players ride a potential upswing in the U.S. economy.

A $15 billion auction on 10-year TIPS this coming Thursday, the first such sale of the year, is expected to draw plenty of interest.

“I like the TIPS market a lot more than the nominal market,” said Ray Humphrey, fixed-income portfolio manager at Hartford Investment. He said short-dated TIPS are a good buy because they’re underpriced, and it would take significant disinflation over the next couple months to put a damper on their appeal. Last month’s five-year TIPS offering saw strong interest, going off at a record-low yield.

Adding to this sentiment, some analysts are actually saying small doses of inflation could come in the mid-term because there’s been a run the past several weeks of stronger-than-expected U.S. economic data. Most analysts also expect the Federal Reserve to introduce another round of quantitative easing later this year, which would lead to higher inflation expectations.

TIPS as long as 10 years in maturity are currently offering negative yields, but historically low Treasury yields–after accounting for inflation–are also negative. This gives TIPS a leg up because they’re built to take advantage of possible upticks in inflation. Their returns are adjusted for headline consumer prices, so their value goes up as the CPI rises. Regular Treasurys, meanwhile, depreciate in value as inflation increases because they’re a fixed income stream.

Surging energy prices early last year and the Federal Reserve’s ongoing easy monetary policy helped TIPS outperform in 2011, when they handed investors 13.56% in returns, according to the Barclays Treasury inflation-linked index, compared to 7.84% for the nominal Treasurys market. The difference between yields on a regular Treasury note and a similarly dated TIPS note is called the breakeven rate. The breakeven for 10-year paper, for instance, is currently about 2.01%–that means investors expect a 2.01% annual rate of inflation over the next decade.

Chirag Mirani, inflation-linked strategist at Barclays Capital, sees “a lot of value” in the long end of the market. He cites the 30-year breakeven rate of 2.15%, which he says should be closer to 2.4%.

The Credit Suisse interest-rate research team recommends buying these breakevens with the expectation that they’ll move higher later this year. Jonathan Lewis, founding principal and portfolio manager at Samson Capital Advisors, also said breakevens look low given the recent firmer economic data.

Renowned bond guru Bill Gross, who manages the world’s largest bond fund at Pacific Investment Management Co., recently said he likes long-dated TIPS as a means of protection against the Fed’s unprecedented series of stimulus programs that’s poured trillions of dollars into the economy. The excess cash spurs inflation because it debases the value of the currency.

The coming holiday-shortened week will provide the latest read on U.S. consumer and producer prices from December. The consumer price index will be released Thursday, ahead of the TIPS auction, while the producer price index is due Wednesday.

“The reality is that I’m a bit more positive on growth,” Hartford Investment’s Humphrey said. Even so, “the Fed has been telling you ‘I don’t care what the data is telling you, we’re keeping the policy rate low.'”

-By Cynthia Lin, Dow Jones Newswires; 212-416-4403; cynthia.lin@dowjones.com