Which BTPs to buy today (and quickly)

Which BTPs to buy today? The Eurozone price increase that was released on Friday raises questions about how soon the ECB will start cutting interest rates.
Some say the reduction in government subsidies on gas, electricity and food, which began last year, has triggered a reacceleration of annual inflation in the euro zone.
It could be true.
But it's too early to tell.
I believe that the increase in unemployment, which will occur in the 1st quarter of 2024, will however lead to a contraction in consumption and a progressive reduction in demand inflation.
Now everyone will say: “If Eurozone inflation rose to 2.9% in December, reversing six months of consecutive declines, we must start to have doubts about the timing with which the European Central Bank will start cutting interest rates” .
Real.
But this concerns the short-term part of the European interest rate curve.
Not the long-term part of the rate curve, which remains influenced solely by future inflationary expectations present on the markets, and also given that the long-term part of the curve is no longer governed by the ECB, now that Quantitative Easing is history.
I therefore believe that the next macroeconomic data (inflation, unemployment, industrial production, etc.) will point to a progressive cooling of the eurozone economy.
Maybe to a recession.
Which BTPs to buy today (and quickly) This level of interest rates, which has risen slightly from the lows of 27 December – when the 10-year BTP yielded 3.5% – can once again represent a purchasing opportunity for the 2033 bund or for the Btp 2033, or for the Btp 2053 (to give just a few examples).
In fact, now – January 5th – the 10-year BTP yields 3.85% with an increase of approximately 30 bps.
The annual increase in consumer prices in the 20 countries that share the euro increased in December from a two-year low of 2.4% achieved in the previous month, but was slightly lower than the 3% rate expected by the economists in a Reuters poll.
This has led investors to scale back their bets that the ECB will start cutting rates as early as March, undermining the recent rally in bond markets.
In reality – in my opinion – the rally had been too fast and too intense and what we are witnessing is a very normal period of profit taking: the market is unloading the overbought that had accumulated since mid-October (when the Italian 10y yielded 5%) until the end of December (when the 10y BTP closed at the lows, as mentioned above, of 3.5%).
As much as 50bps of contraction in the yield on the Italian 10y, in just 2 months, means on average +500bps of increase in the price of the 10y bond.
Frankly too much in such a short time.
I didn't expect it either, although I am a convinced supporter of the decline in rates starting from September 2023, as written in various articles on Money.it.
So, the market is reversing.
And it is therefore time to return to the 10-year and 30-year contracts.
Returning to the yield lows of December 27th is possible, at least in the short term.
I am therefore talking about a contraction of approximately 1/3 of a percentage point in the 10-year yield.
On the Italian curve I therefore like long-very long-term securities with high coupons: Btp 4.5% OTT.2053 (ISIN IT0005534141).
At 101.50 it yields 4.45% gross at maturity.
If we assume the return drops to 4.15%, the price rises to 106.70.
Btp 4.45% SEPT.2043 (ISIN IT0005530032), which is worth 102 today and yields 4.35% gross at maturity.
If the yield fell by 30bps to 4.05%, the price would rise to 106.
Btp 4% AP.2035 (ISIN IT0005508590).
Today it is worth 101.20 and yields 3.90% gross at maturity.
If the yield fell to 3.60% the price would rise to 104.10.
Buy them now and wait until the end of the 1st quarter of 2024.
You could make good profits if you are able to tolerate the risk and if you do so in moderation, and always with a view to diversifying your portfolio.
EU inflation set to fall I, I repeat, continue to believe that eurozone inflation will soon start to fall again.
December's increase in price pressures was just a statistical “flash” set to recede and will reverse in January due to further declines in food and services inflation.
A price-cooling impact will certainly come from the decline in rental prices and house prices, especially after mortgages have become more expensive for families and after the cost of money for business investments has undergone sharp increases.
Industrial production in the euro zone will therefore also decline.
I am sure.
However, the ECB, which meets to discuss monetary policy on January 25, has dismissed investors' expectations of an imminent rate cut, saying it wants to see signs of cooling wage pressures to ensure inflation is on track.
way to reach the 2% target.
A "prudential" language, which is dictated by the expectation of macro data consistent with the expected drop in prices.
I am not surprised that the ECB remains cautious.
It cannot lose prestige again after having predicted "temporary" and short-lived inflation in 2021.
Another factor that will cool inflation will be energy prices in the first quarter of 2024.
According to the harmonized index of consumer prices published by Eurostat on Friday, energy prices in the Eurozone fell by 6.7% to December, compared to an annual decline of 11.5% in the previous month.
And finally, the most important thing is to look at “core inflation”.
Core inflation, which excludes volatile energy and food prices, is very useful in providing a detailed picture of underlying price pressures, and slowed from 3.6% in November to 3.4% in December .
Services inflation, which is monitored closely by the ECB to see the impact of rising wages, remained stuck at 4%.
DISCLAIMER The information and considerations contained in this article should not be used as the sole or primary support on which to make investment decisions.
The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings.