The yield on Italian 10-year
TMBMKIT-10Y,
0.680%

and 30-year
TMBMKIT-30Y,
1.529%

debt fell to record lows on Monday.

As this chart from Deutsche Bank shows, the yield on the Italian 10-year is lower than it was even before Italy became a country. Deutsche Bank strategist Jim Reid attached proxies for Italian debt, such as from Naples, to chart pre-1861 data. (There is also a gap in the data series for the 1700s.)

He also charted debt-to-gross-domestic-product, which shows the Italian economy with an all-time low capability to service that debt.

The move on Monday came after the European Central Bank’s chief economist gave an interview suggesting the central bank may take further action. Among the ECB’s actions stimulus so far is the purchase of government debt from countries including Italy, through what’s called the pandemic emergency purchase program.

“Has the ECB permanently suppressed yields and spreads or are there many more twists and turns to this story over the years ahead? I would lean towards the latter but for now Italian politics and their control of the second wave are acting as strengths and not weaknesses,” Reid said.

David Stockman, the former Reagan-era budget director and acerbic critic, looked at the same chart and issued this brief but withering analysis: “when central banks crush rates, politicians bury their governments in debts.”

The current explosion in debt-to-GDP has been because the latter dropped, precipitously. The Italian economy shrank by 18% year-over-year in the second quarter.

Italy also has been issuing more debt. According to Italian bank Intesa Sanpaolo, Italy is forecast to issue a net €177 billion in new debt in 2020, compared with €54 billion in 2019.

Source Article

The amount of speculators’ bearish, or short, positions in 30-year Treasury futures exceeded bullish, or long, positions by 230,312 contracts on Oct. 6, a record, according to the CFTC’s latest Commitments of Traders data.
 

The 30-year yield, which moves inversely to prices, has rallied to a four-month high since August, when Federal Reserve Chair Jerome Powell announced that the central bank would allow periods of higher inflation in order to average its target 2% rate.

Bets on lower bond prices have also been fueled by expectations that the nascent U.S. economic recovery will continue, as investors await an additional round of fiscal stimulus from lawmakers and breakthroughs in the search for a vaccine against COVID-19.

The 30-year long bond yield is about where it was on March 6.

Yet speculators keep piling on with record bets.

Any bit of sustained economic weakness will cause the long bond yield to drop blowing the long bond shorts out of the water.

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Source Article

(Bloomberg) — An upcoming surge in euro-area bond sales should be more than swept up by the record amount cash of sitting idly in the economy, potentially adding fuel to the rally sweeping across the region’s debt markets.

Next week, bond offerings in the eurozone are expected to rise five-fold, with Germany, Italy and France, among others issuing a combined 30 billion euros ($35.4 billion) worth of securities, according to Commerzbank AG. That’s still less than the amount of debt coming due.

The supply also comes as excess liquidity in the euro area ballooned past the 3-trillion-euro mark for the first time ever last week, thanks to unprecedented support from the European Central Bank.



chart: Italy sells debt next week with yields at record lows


© Bloomberg
Italy sells debt next week with yields at record lows

The monetary authority’s liquidity injections have already pushed yields on some of the region’s riskiest borrowers to record lows. With speculation now growing that the ECB will expand and extend its program in December, demand for euro-area debt could prove solid at the auctions, spurring the next leg of the rally.

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“The period from now until year-end does provide a fertile backdrop for further spread compression,” UBS Group AG strategists including Rohan Khanna wrote in a note to clients, referring to the yield premium between peripheral debt and German bunds.

While U.S. election uncertainty could lead to some volatility, “the ECB has enough firepower to fight against any unwarranted widening in spreads,” Khanna said.

Read More: Corporate America Puts $2 Trillion in Bank in Run-Up to Election

Offering additional support will be around 41 billion euros of redemptions from Germany, Italy and Ireland, which will need to be reinvested. Meanwhile, coupon payments from these three nations and Portugal will total over 1 billion euros next week.

Budgets, Brexit

National finances will also

By Swati Bhat

MUMBAI, Oct 9 (Reuters)The Reserve Bank of India assured bond markets on Friday that it stands ready to take whatever measures are necessary to ensure adequate liquidity in the banking system, sparking a sharp rally.

The RBI said it will conduct on-tap long-term repo operations, open market purchases of bonds and special open market operations (S-OMOs), and also provide the increased held-to-maturity limit to banks until March 2022 versus March 2021.

“For the bond market, this is like an early Diwali and just as the March policy (decision) was termed a bazooka, there is enough today to light up some fireworks,” said Arvind Chari, head of fixed income and alternatives at Quantum Advisors, referring to the Hindu festival of lights which falls next month.

The benchmark 10-year bond yield IN057730G=CC dropped as much as 10 basis points to 5.92% on Friday. The measures were announced alongside a monetary policy committee decision.

The MPC kept rates on hold as predicted while keeping policy stance accommodative to help pull the coronavirus-ravaged economy out of its worst slump in four decades.

Bond markets have been stressed in recent months by the government’s record 12 trillion rupee ($164.16 billion) borrowing program and higher borrowing requirements by states.

“In order to impart liquidity to state development loans (SDLs) and thereby facilitate efficient pricing, it has been decided to conduct OMOs in SDLs as a special case during the current financial year,” RBI Governor Shaktikanta Das said, adding these and other measures should ease fears about illiquidity.

Market participants had complained of a lack of clarity on what measures the RBI would take, amid fears the government could further increase borrowing in the last quarter if revenues remained weak.

“We look forward to cooperative solutions for the borrowing programme for

By Kevin Flanagan

Jobs Day last Friday was the final such report before the election. However, given the headlines surrounding President Trump and the First Lady’s COVID-19 diagnoses and the ongoing specter of a potential fiscal stimulus package, this month’s employment data has flown a bit under the radar and had little, if any, immediate impact on the bond market. That being said, labor market improvement continued, albeit at a more moderate pace than the last few months. Here are the key takeaways:

  1. Despite the “headline miss” for payrolls, the overall report was relatively solid.
  2. Total nonfarm payrolls (NFP) rose 661,000, visibly lower than the +859,000 consensus estimate, but the prior two months were revised upward by 145,000. Put those two numbers together and the gain (+806,000) is a lot closer to consensus.
  3. Also, temporary census workers got removed in September, but perhaps more important was the fact that private payrolls rose 877,000, with job gains widespread across sectors/industries. Uneven school openings around the country appear to have pushed state and local government education employment down by 280,000.
  4. The jobless rate fell 0.5 pp to 7.9%, as the number of unemployed declined by 970,000 – the peak was 14.7% in April.
  5. Obviously, the pace of job gains has slowed, and further improvement would certainly be helped by another round of fiscal stimulus no doubt – a point the Fed continues to emphasize. NFP has now recouped about 52% of the Mar/Apr job losses.
  6. Remember the good old days when Fed Funds Futures would respond to the jobs report? Well, not anymore… With the Fed on autopilot, Fed Funds Futures show no rate hikes all the way through 2023.

Fixed Income Insights

After showing little response to the jobs data, the U.S. Treasury (NYSEARCA:UST) 10-year yield started off this week