Trump Offered Assistance
In a meeting with Italian prime minister Giuseppe Conte last month, US President Donald Trump purportedly offered Italy assistance in buying the country’s sovereign bonds in the face of the country’s distressed financial health, which could have ripple effect implications to the rest of the Eurozone.
“We have to see how the government does its fiscal numbers,” said Holger Schmieding, chief economist at investment firm Berenberg. “If they don’t add up by the end of September, things could indeed get somewhat rough for Italy. This grave uncertainty about the fiscal plans is a significant rollback for Italy because it does mean that down the road, an Italian debt crisis — which would look pretty unlikely a year ago — is now a possibility.”
There are no specifics as to how President Trump would implement this bond purchase. The Federal Reserve does have a market desk that typically handles the bank’s bond purchases, but it operates independently of the president.
High-Yield ETF Gains
As the yields on Italian benchmarks fell, a high-yield ETF, ProShares High Yield—Interest Rate Hdgd (BATS: HYHG), gained. HYHG gained slightly at 0.13% and is up 4.07% year-to-date, according to Yahoo! Finance performance numbers.
HYHG tracks the performance of the Citi High Yield (Treasury Rate-Hedged) Index and allocates 80% of its total assets in high-yield bonds and short positions in Treasury Securities in order hedge against rising rates. Because HYHG invests in high-yield bonds, there is credit risk associated with the higher yield since the fund invests in corporate issues that are less than investment-grade. By targeting a duration of zero, HYHG offers less interest rate sensitivity versus its short-term bond peers.
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