Italy bond exchange traded notes jumped Thursday, with benchmark yields touching a new Eurozone-era low at the government auction, after the unexpected victory of the center-left PD party in the country’s elections.
The leveraged PowerShares DB 3x Italian Treasury Bond Futures ETN (NYSEArca: ITLT) was up 6.5% Thursday while the unleveraged PowerShares DB Italian Treasury Bond Futures ETN (NYSEArca: ITLY) was up 2.2%. Year-to-date, ITLY has increased 9.0% and ITLT jumped 29.7%.
Rome’s auction on 10-year bonds sold at an average yield of 3.01%, Italy’s lowest rate since the country joined the European Union, reports Elaine Moore for Financial Times.
The sale comes days after Italy’s new prime minister Matteo Renzi win in European elections.
“What neither the polls nor market participants predicted was Prime Minister Matteo Renzi’s centre-left PD party scoring a substantial victory,” Morgan Stanley’s European economist Daniele Antonucci said in a Wall Street Journal article. “Financial markets, predictably, responded positively to these developments, perhaps thinking that one near-term risk is out of the way.”
The party promised to increase economic reforms within the country.
“Even though Italian politics may still be subject to setbacks, we believe that the key takeaway is that, after the positive impact of the ‘Renzi effect’, his strengthened position may well lead to a more concrete implementation, and a better formulation, of his economic policies,” Antonucci added.
Benchmark 10-year yields on Italian Treasuries were hovering around 2.95% mid-Thursday.
After peripheral states, like Italy, paid down Eurozone crisis obligations and returned to the debt markets, investors have pushed down yields in anticipation that the European Central Bank will counter the low inflation and growth environment with additional monetary easing. [Investors Pour Cash Into Peripheral Europe ETFs]
Potential investors should note that the PowerShares DB Italian Treasury Bond ETNs are relatively small – ITLY has an average daily volume of around 7,500 and ITLT has an average volume of around 5,400, according to Morningstar data. Investors should utilize limit orders to better control trades.
PowerShares DB Italian Treasury Bond Futures ETN
For more information on Italy, visit our Italy category.
Max Chen contributed to this article.