BTP: scary sell-off, crazy spread. ECB only hope now?

READ MORE ARTICLES ON

BTP
spread

BTPs collapse under a rain of sales, with a surge of more than 20% of the 10-year yield. It is an escape from risk: does the lifeline arrive from the ECB?

Like what is happening for the stock market, with Piazza Affari seeing the Ftse Mib drop by almost 9%, the Italian bond market is also experiencing a very high voltage session today.

BTPs sold at full hands. Strong rally spread

Although slightly improving from the peaks reached in the first hour of trading, the BTP-Bund spread shows a strong widening, with a rally of 18.6% to 214.9 basis points, after exceeding 230 in the intraday.

A real target is hitting the BTPs with an incessant and violent rain of sales that leads the ten-year yield to score a jump of 22.2% to 1.332%.

BTPs hit by growing fears about coronavirus. Race to the Bund

To panic and to cause this sell-off on BTPs is the escalation in the number of coronavirus infections in Europe and in particular in Italy.

Investors thus escape from risky assets and seek shelter in safe-haven assets, as evidenced by the Bund’s purchases which bring the 10-year yield to new historical lows.

According to Commerzbank strategists, the risk-off that dominates the market scene is compounded by growing signs of credit stress across the system. According to experts, the chances of a coordinated political response increase.

Would you like to understand how to best operate on BTPs?

Sign up here to stay updated on Trend-Online.com’s free training events

BTP and Spread: look to the ECB now. What to expect?

As explained by MPS Capital Services analysts, the operators at this point focus on the ECB and the other Central Banks, after the surprise move by the Fed that on Tuesday cut interest rates by 0.5%.

In view of the Eurotower meeting on Thursday, according to MPS Capital Services operators currently do not expect a cut in interest rates, even if the numbers of those who see a 10 basis point reduction in deposit rates are increasing.

Hopes are in any case placed in the ECB, as highlighted by IG analysts, and according to colleagues at Danske Bank, Eurotower will have to be innovative to face the current situation.

BTP and Spread: Danske Bank’s forecasts on the moves of the ECB

Analysts, while acknowledging that there is a significant risk in this regard, do not expect the Board led by Lagarde to cut interest rates in Thursday’s session, believing that such a move will more likely come in the second quarter, possibly at the meeting by 30%.

Danske Banke’s idea is that the ECB focuses on liquidity structures for small and medium-sized enterprises.

The hope is that Eurotower will intervene to contain the growing market fears related to the impact of coronavirus on the economy, thus giving a breath of fresh air to BTPs which, together with the securities of the peripheral countries, continue to remain under pressure.