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f739c20f2081a66a676cce161593bd0da5fd95f82a2abe792f6023717552c8ee;;[{"layout":"detailed","uid":29304,"publicationDate":"25 May 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2023_185084.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVLJh74bJTrykz6wmNoLpd_ayQGzAO88XIQ==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - EU journey from SSAs to govies: ticked and unticked boxes","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Two years after the first NGEU transaction, we take stock of market developments and discuss whether EU bonds are making progress in moving from being seen as SSAs to being perceived as sovereign-like bonds. <\/li><li> While the technical market set up (repo, use of collateral, etc.) has improved recently and EU bonds enjoy a well-diversified investor base, the following main factors are limiting the role EU bonds have with investors: 1. compared to sovereigns, credit risk is more dependent on the political commitment of member states as the EU does not have the independent ability to raise its own resources; 2. even under the most optimistic scenarios, the outstanding of EU bonds will remain significantly below that of Germany and France, which will weigh on liquidity; and 3. under the current framework, the asset class is temporary as the EU is expected to start repaying its debt starting from 2028 and 4. EU bonds are not included in major government bond indices, so they do not enjoy the same amount of natural demand as their sovereign cousins.<\/li><li> Tackling the first two points is ultimately a political decision. Importantly, boosting EU funding would require strong political backing by the larger countries, which enjoy a lower funding cost domestically. A clear commitment to making EU bonds a 'permanent' asset will also increase the likelihood of EU being included in sovereign indices.<\/li><li> EU bonds could become over time the reference risk-free asset for euro area fixed-income but the journey is still very long.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Julian","last":"Kreipl","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=128&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=2dee1f2fe767be73f3820cb445dc27da"},{"first":"Luca","last":"Cazzulani","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=39&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=44e3fa0de8cdd1ffaea59e3843112f22"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}],"hash":"f739c20f2081a66a676cce161593bd0da5fd95f82a2abe792f6023717552c8ee","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"2","showcompanies":"2","showcountries":"2","showcurrencies":"2","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"300","synopsisexpand":"1","shownav":"0","oldestedition":"","limit":"5"}},{"layout":"detailed","uid":29178,"publicationDate":"20 Apr 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184916.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJEMIeq_2xHJckE62MmXzfkY=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - The return of domestic private investors to the BTP market","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Demand for Italian government debt from non-financial domestic private investors has increased strongly in recent months. Bank of Italy data show that from September 2022 to January 2023 (the latest month for which data are available), net purchases by Italian households and corporates amounted to EUR 50bn. Since December 2021, the figure is an even bigger EUR 70bn. Purchases are significant and represent increases of 30% and 50% of the stock respectively.<\/li><li> As the chart suggests, attractive returns have played an important role: the 6-month BOT rate has risen along with ECB rates by over 300bp in the past year. Indeed, anecdotal evidence points to healthy demand from retail investors for short-maturity debt. Furthermore, BOTs were cheaper than OIS in 2021 and have tightened to trade through OIS from mid-2022, an indication of increasing demand at this tenor.<\/li><li> A proactive issuance strategy by the Treasury aimed at reaching private investors is also paying off. Italy sold EUR 7.3bn of BTPi Nov28 to retail investors last November and EUR 8.6bn of BTPi Mar28 this March (the latter is not yet reflected in the data, which are up to January). Improving demand from private investors has likely contributed to supporting BTP\u00b4s credit spread at a time of abundant supply and ahead of the start of quantitative tightening in March.<\/li><li> The amount of Italian market debt held by households and corporates is now around EUR 215bn, the highest level since mid-2015. This represents a share of around 9% of total market debt (vs. 12% back then). Given that bank deposits are very large ' amounting to almost EUR 1.3tn for households and around EUR 380bn for non-financial corporates ' there is room for some additional purchases of BOTs and BTPs. If so, demand by households and corporates could provide ongoing support to Italy\u00b4s sovereign spreads.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Luca","last":"Cazzulani","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=39&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=44e3fa0de8cdd1ffaea59e3843112f22"}],"countries":[{"name":"Italy","ticker":"IT","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=5&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=39d7224c0452f3251d42f8f8656acb2b"}]},{"layout":"detailed","uid":29020,"publicationDate":"03 Mar 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184715.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XCPOOcV_yU5aE=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Beating inflation? A risk-taking attitude is needed","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Euro area inflation continues to surprise to the upside, posing a concern for consumers and policymakers. It also causes a headache for investors, as it threatens the real value of their investments. Which strategy has better chances of beating inflation in the long run' Our Chart of the Week shows the average return and volatility for a number of asset classes over the last twenty years. Looking at such an extremely eventful period, which includes the global financial crisis, the sovereign debt crisis, the low-inflation period that eventually triggered QE, the pandemic and a severe escalation of geopolitical tensions, can provide a good idea about unconditional asset returns. During this period, euro area inflation has averaged 2% with wide swings, from slightly less than 0% to double-digit peaks not seen since the late seventies.<\/li><li> With the benefit of hindsight, exposure to various risk factors has been the best way to achieve real returns significantly above inflation. Equities have delivered the highest real return (at the price of highest volatility) and HY dominated in fixed income. Commodities performed better than inflation, although this came with significant volatility. A portfolio of European ILBs would have delivered good protection against inflation but only modest real returns, mainly because of negative real yields from 2012 onwards. BTP'Is would have delivered a better performance thanks to a credit-risk component. Liquidity, proxied by a European government bond index with a maturity of 1-3Y delivered negative real yields, mostly because highly expansionary monetary policy after 2012 compressed yields at the short end.<\/li><li> The sample is very long, so one may wonder whether these results also hold for sub-periods. The picture remains broadly the same when focusing on the period of low inflation, from mid-2009 until mid-2021. During the last year or so, when inflation accelerated sharply, equities managed to keep the pace. Inflation-linked bonds outperformed other fixed-income assets, unsurprisingly proving to be the best pick. However, even this asset class failed to deliver positive real returns.<\/li><li> What can we learn from this' First, exposure to risky assets and credit risk is likely to remain a key source of real returns in the long run. Second, cash flows directly linked to inflation are important but not sufficient. ILBs provide good protection from inflation, but positive real yields are needed to produce value. Third, monetary policy is key. Periods of expansionary monetary policy compress real yields and make it more challenging to beat inflation without a contribution from credit-risk exposure. This has become less of an issue in the current environment of monetary policy tightening but whether this is a structural shift (to positive real yields) or not (i.e. back to the pre-pandemic era of negative real yields) remains to be seen.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Luca","last":"Cazzulani","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=39&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=44e3fa0de8cdd1ffaea59e3843112f22"}]},{"layout":"detailed","uid":28936,"publicationDate":"09 Feb 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2023_184597.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVLJh74bJTryk8F6CNEu40Z1QdGsCfpzYJg==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Who holds German debt? A deep dive into bond investor statistics","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> In this note, ahead of the start of quantitative tightening in March, we look at the investor base in German government bonds and at how it has changed since the start of QE.<\/li><li> The stock of German public debt started to rise during the pandemic, and we expect net supply to amount to around EUR 150bn in 2023, while QT should release EUR 30-40bn of debt. Both domestic banks and foreign investors have reduced holdings of sovereign debt in recent years and should be able to buy in 2023 with only limited pressure on yields.<\/li><li> We estimate that around 70% of German debt is held by the ECB or by investors with a buy-and-old approach, such as foreign officials or international organizations. We project that this ratio will fall to around 60% by end-2023. A higher free-floating amount of German debt should make German yields more responsive to the macroeconomic picture.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Luca","last":"Cazzulani","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=39&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=44e3fa0de8cdd1ffaea59e3843112f22"}],"countries":[{"name":"Germany","ticker":"DE","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=9&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=b98f1916ef68c367defade63b875243d"}]},{"layout":"detailed","uid":28810,"publicationDate":"03 Jan 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2023_184430.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVLJh74bJTrykZUfK-sgs6ixw-UM4WW-zog==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Italy\u00b4s funding in 2023: maturity lengthening is the name of the game","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Italy has EUR 260bn of redemptions in 2023, around EUR\u00a030bn more than in 2022. Borrowing needs will be EUR 90bn, also up from 2022.<\/li><li> The Treasury expects to issue EUR 310-320bn of M\/L term bonds, EUR 30-40bn more than in 2022. Italy will receive around EUR 25bn of loans from the EU, roughly in line with 2022. We expect other funding sources, including the sale of international bonds, to amount to EUR 15bn.<\/li><li> This year, net supply of M\/L term bonds should amount to EUR 45-55bn, mostly concentrated in the first half of the year. Furthermore, private investors will have to buy around EUR 25bn of BTP redemptions that will not be reinvested by the ECB.<\/li><li> The issuance strategy for 2023 aims to contain the refinancing risk in the coming years and to lengthen the average life of the debt. Issuance is expected to be light at the short end and more robust in the 10Y area and at the extra-long end. For this reason, we like steepener trades on the BTP curve.<\/li><li> In 2023, the Treasury will sell a new 6M BOT every other month, tapping it in the following month. The Treasury will continue to actively manage its liquidity buffer via repo operations. Any ECB decision to resume remunerating government deposits at 0% after May 2023 will increase pressure in this respect.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Luca","last":"Cazzulani","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=39&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=44e3fa0de8cdd1ffaea59e3843112f22"},{"first":"Francesco Maria","last":"Di Bella","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=131&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=28af0fd2e8ef8c37a4854c55e529c47a"}],"countries":[{"name":"Italy","ticker":"IT","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=5&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=39d7224c0452f3251d42f8f8656acb2b"}]}]


Dr. Luca Cazzulani
Head of Strategy Research
FI Strategist
UniCredit Bank AG, Milan
Piazza Gae Aulenti, 4 - Tower C
I-20154 Milan
+39 02 8862-0640

Luca Cazzulani is UniCredit’s Head of Strategy Research and an FI strategist. He covers market dynamics with a particular focus on the EMU. Luca has an MSc in Econometrics  from the Lon...

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