Italian Bond ETFs Jump on Summit Hopes

December 5th at 6:30pm by Tom Lydon

Italian bonds and related exchange traded notes rallied Monday Monday with benchmark 10-year yields pushed to a recent low on hopes that the European Union summit will provide much needed relief and as investors take in Italy’s new austerity measures.

The volatile Italian bond ETFs rose although Standard & Poor’s placed 15 European nations on review for possible credit downgrade.

The leveraged PowerShares DB 3x Italian Treasury Bond Futures ETN (NYSEArca: ITLT) was up 14.59% at last check Monday and the unleveraged PowerShares DB Italian Treasury Bond Futures ETN (NYSEArca: ITLY) was up 5.04%.

The benchmark 10-year Italian bond yield dipped back below 6% Monday, the lowest since October. [Italy ETF’s 2009 Low in View After Poor Bond Auction]

On Friday, 27 European Union leaders will converge at an EU summit in Brussels to prevent the widespread collapse of the euro currency and stem the financial contagion.

French President Nicolas Sarkozy warned last week, “the world will not wait for Europe,” underlying the potential fallout if the summit amounts to nothing but squabbling and wishful thinking.

On Monday, Sarkozy and German Chancellor Angela Merkel proposed changes to the Eurozone treaty that would impose sanctions on countries that don’t meet budget deficit targets, along with the “European Stability Mechanism” – a rescue fund to set to be implemented next year, report Nick Cawley and Neelabh Chaturvedi for the Wall Street Journal.

Italian bonds were also gaining after Italian Prime Minister Mario Monti announced $40.3 billion in austerity and growth measure cuts to help lower the country’s deficit.

“The market is betting a lot on a positive outcome at the end of the week after the leaders’ summit and that’s supporting peripheral bonds,” Gianluca Ziglio, interest-rate strategist at UBS AG, said in a Financial Post article. “The Italian budget measures seem to go in the right direction, especially in terms of the size.”

PowerShares DB Italian Treasury Bond Futures ETN

For more information on Europe, visit our Europe category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers