The euro zone’s highest investment-grade bond yields are simply too good to pass for some investors even as another round of dust-up between Italy and European Union looms large this week.
M&G Investments is dipping back into Italian short-dated debt, while BlueBay Asset Management has a long position in the securities known as BTPs. The near doubling of yields since the start of the year has also tempted retail investors back into the market, who tend to hold the bonds until maturity, according to the nation’s debt agency head Davide Iacovoni.
That’s despite an ongoing standoff with the EU, which saw the bloc dismiss Rome’s budget targets as overly optimistic. While Italy has until November 13 to submit a revised version of its spending plans, the government has signaled it won’t bow to pressure from Brussels.
A pullback in Italy’s yield premium over Germany suggests the market is soft-pedalling the risk of populist politics in Rome destabilising the EU, not least because similar fears have already played out from France to Greece in recent years with little long-term consequence. Past episodes of euro-breakup anxiety were typically resolved by last-minute compromises, and that may be fuelling market expectations for a similar outcome to the ongoing Italian imbroglio.
While there’s no sign yet of an end to tensions with the bloc, that still doesn’t justify yields as high as they are, according to BlueBay.
“It’s been quite a rough and at times painful ride, but we still do think that we have the mispricing of Italian EU-exit risk,” said David Riley, chief investment office at BlueBay.
Investors are also looking to take advantage of a rare period of stability in Italian bonds, which have been rocked this year after eurosceptic political parties rose to power. S&P Global Ratings and Moody’s Investors Service both stopped short of downgrading the nation to junk last month, supporting investor confidence for the time being.
Wolfgang Bauer, who co-manages the M&G Absolute Return Bond Fund for the UK investment house that oversees £286 billion (Dh1.36 trillion), sold most of his Italian bond holdings in February and March this year and has only just started to re-enter the market. His colleague Richard Woolnough has recently invested 1 per cent of his M&G Optimal Income Fund portfolio in short-term BTPs after exiting peripheral euro-zone debt in May.
“The risk-reward profile is now more attractive,” Mr Bauer said in Milan, Italy. “Even in the worst case scenario - a euro exit - it’s very unlikely that will be done in two years.”
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Read more:
Italy's budget inflexibility likely to widen divide with EC
Explainer: What is behind Italy's fall-out with the European Commission?
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Italian 10-year bond yields were at 3.40 per cent Friday, little changed this month. That compares with similar rates of 0.41 per cent in Germany, 0.79 per cent in France, 0.11 per cent in Japan and 1.5 per cent in the UK. The spread over bunds was 299 basis points, down from as wide as 341 basis points on October 19. Still, the gap has almost doubled from the end of last year.
This year’s surge in yields is boosting borrowing costs for Italy, one of euro zone’s most indebted economies. Debt-funding expenses for next year will rise by about $5.7bn compared with the end of 2017, based on the seven-year weighted average maturity of its debt and the 175 basis point increase in seven-year yields in the secondary market this year.
Italy will auction securities maturing in 2021, 2025 and 2038 on November 13.
Other investors are still more sceptical. OppenheimerFunds money manager Alessio de Longis is positioning for European political risk by buying the Japanese yen versus the euro. Alongside Italy, he cited the withdrawal of European Central Bank stimulus and slowing economic growth in the region as other reasons to be bearish.
“This is a way we are expressing euro-specific discomfort with respect to some of the developments that could occur with Italy,” said Mr de Longis, who helps oversee $2bn in New York. He is targeting ¥124 per euro, from around 130 currently. “Italy is a big problem - that is not going to go away.”
While Italian bonds may seen more volatility due to simmering Rome-Brussels tensions, both sides are eventually likely to reach a compromise in the longer run, according to HSBC.
Further disagreement between the two sides is already “widely expected” by the market and there is still scope for improvement in sentiment toward Italian bonds, according to Mizuho International.
“We’re not expecting much of a sell-off in BTPs beyond a short term ‘knee-jerk’ reaction,” strategists Peter Chatwell and Antoine Bouvet wrote in a note to clients last week. They recommended buying five-year bonds versus their two and eight-year peers.
Married Malala
Malala Yousafzai is enjoying married life, her father said.
The 24-year-old married Pakistan cricket executive Asser Malik last year in a small ceremony in the UK.
Ziauddin Yousafzai told The National his daughter was ‘very happy’ with her husband.
Business Insights
- Canada and Mexico are significant energy suppliers to the US, providing the majority of oil and natural gas imports
- The introduction of tariffs could hinder the US's clean energy initiatives by raising input costs for materials like nickel
- US domestic suppliers might benefit from higher prices, but overall oil consumption is expected to decrease due to elevated costs
The Sky Is Pink
Director: Shonali Bose
Cast: Priyanka Chopra Jonas, Farhan Akhtar, Zaira Wasim, Rohit Saraf
Three stars
If you go
Flying
Despite the extreme distance, flying to Fairbanks is relatively simple, requiring just one transfer in Seattle, which can be reached directly from Dubai with Emirates for Dh6,800 return.
Touring
Gondwana Ecotours’ seven-day Polar Bear Adventure starts in Fairbanks in central Alaska before visiting Kaktovik and Utqiarvik on the North Slope. Polar bear viewing is highly likely in Kaktovik, with up to five two-hour boat tours included. Prices start from Dh11,500 per person, with all local flights, meals and accommodation included; gondwanaecotours.com
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
The specs
Engine: 3-litre twin-turbo V6
Power: 400hp
Torque: 475Nm
Transmission: 9-speed automatic
Price: From Dh215,900
On sale: Now
SPECS
Engine: Two-litre four-cylinder turbo
Power: 235hp
Torque: 350Nm
Transmission: Nine-speed automatic
Price: From Dh167,500 ($45,000)
On sale: Now
The specs
Engine: 3.9-litre twin-turbo V8
Power: 620hp from 5,750-7,500rpm
Torque: 760Nm from 3,000-5,750rpm
Transmission: Eight-speed dual-clutch auto
On sale: Now
Price: From Dh1.05 million ($286,000)
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
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SM Town Live is on Friday, April 6 at Autism Rocks Arena, Dubai. Tickets are Dh375 at www.platinumlist.net
Citadel: Honey Bunny first episode
Directors: Raj & DK
Stars: Varun Dhawan, Samantha Ruth Prabhu, Kashvi Majmundar, Kay Kay Menon
Rating: 4/5
Engine: 5.6-litre V8
Transmission: seven-speed automatic
Power: 400hp
Torque: 560Nm
Price: Dh234,000 - Dh329,000
On sale: now
England v South Africa Test series:
First Test: at Lord's, England won by 211 runs
Second Test: at Trent Bridge, South Africa won by 340 runs
Third Test: at The Oval, July 27-31
Fourth Test: at Old Trafford, August 4-8
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
Champions parade (UAE timings)
7pm Gates open
8pm Deansgate stage showing starts
9pm Parade starts at Manchester Cathedral
9.45pm Parade ends at Peter Street
10pm City players on stage
11pm event ends
Unresolved crisis
Russia and Ukraine have been locked in a bitter conflict since 2014, when Ukraine’s Kremlin-friendly president was ousted, Moscow annexed Crimea and then backed a separatist insurgency in the east.
Fighting between the Russia-backed rebels and Ukrainian forces has killed more than 14,000 people. In 2015, France and Germany helped broker a peace deal, known as the Minsk agreements, that ended large-scale hostilities but failed to bring a political settlement of the conflict.
The Kremlin has repeatedly accused Kiev of sabotaging the deal, and Ukrainian officials in recent weeks said that implementing it in full would hurt Ukraine.
All%20The%20Light%20We%20Cannot%20See%20
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If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
Company%20Profile
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Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
From Zero
Artist: Linkin Park
Label: Warner Records
Number of tracks: 11
Rating: 4/5
SPECS
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Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Business Insights
- As per the document, there are six filing options, including choosing to report on a realisation basis and transitional rules for pre-tax period gains or losses.
- SMEs with revenue below Dh3 million per annum can opt for transitional relief until 2026, treating them as having no taxable income.
- Larger entities have specific provisions for asset and liability movements, business restructuring, and handling foreign permanent establishments.
The specs
Engine: Dual 180kW and 300kW front and rear motors
Power: 480kW
Torque: 850Nm
Transmission: Single-speed automatic
Price: From Dh359,900 ($98,000)
On sale: Now
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
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Company%20Profile
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Australia tour of Pakistan
March 4-8: First Test, Rawalpindi
March 12-16: Second Test, Karachi
March 21-25: Third Test, Lahore
March 29: First ODI, Rawalpindi
March 31: Second ODI, Rawalpindi
April 2: Third ODI, Rawalpindi
April 5: T20I, Rawalpindi
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
COMPANY%20PROFILE
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The specs
Engine: 2.0-litre 4-cylinder turbo
Power: 240hp at 5,500rpm
Torque: 390Nm at 3,000rpm
Transmission: eight-speed auto
Price: from Dh122,745
On sale: now
Wicked
Director: Jon M Chu
Stars: Cynthia Erivo, Ariana Grande, Jonathan Bailey
A Bad Moms Christmas
Dir: John Lucas and Scott Moore
Starring: Mila Kunis, Kathryn Hahn, Kristen Bell, Susan Sarandon, Christine Baranski, Cheryl Hines
Two stars
