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Un po di analisi dagli economisti UniCredit:
■Fixed Income assets have rallied sharply in recent months (especially in Europe) and a key question now is whether to remain long or be more cautious. Seasonality argues strongly in favor of being long BTPs in January.
■10Y BTPs have posted an astonishing January performance in the last three years (2012 was related to the LTRO); but even looking at the 1999-2011 period, January has seen yields falling on average.
■On top of seasonality, other factors will drive bonds. BTP yields dropped sharply at the end of 2014 and their performance in January will depend on the extent of profit taking vs. fresh buying. Speculation on QE should be supportive for the periphery in January while a key risk to performance could come from a step up in political uncertainty in Greece (however markets have taken a constructive approach so far).
■The last chart on the right shows that, even in years with strong FI rallies in 4Q, the following January was not dominated by profit taking.
■The rationale behind the observed regularity in January is that investors need to allocate their portfolios for the year, while issuers (especially in the EMU) tend to front load their activity. This leads to a fairly lively trading activity (this is more the case for the EMU). Coupon payments in Germany also contribute to create investment needs.
■The chart below shows the average total return and standard deviation on sovereign bonds (7-10Y bucket) since 1999. January is a good month to stay long EGBs: total return has been positive 65-75% of the time and positive on average. The UK is an exception: returns are on average slightly negative and they have been 50% positive and 50% negative.
■In the EMU, Italy and Spain stand out as the best picks (we have removed the stunning positive performance of BTPs in January 2012). The outperformance vs. Bunds has been 0.36% and 0.42% on average.
■While seasonality argues strongly in favor of being long bonds, it is less clear cut to draw conclusions on curve movements. If we remove January 2009 from the sample (when the ECB was cutting rates) and January 2012 (a period of high market volatility), evidence is fairly mixed, with considerable volatility around the average. If anything, seasonals suggest there is an 85% probability of seeing the 10/30 BTP steepening.
Un po di analisi dagli economisti UniCredit:
■Fixed Income assets have rallied sharply in recent months (especially in Europe) and a key question now is whether to remain long or be more cautious. Seasonality argues strongly in favor of being long BTPs in January.
■10Y BTPs have posted an astonishing January performance in the last three years (2012 was related to the LTRO); but even looking at the 1999-2011 period, January has seen yields falling on average.
■On top of seasonality, other factors will drive bonds. BTP yields dropped sharply at the end of 2014 and their performance in January will depend on the extent of profit taking vs. fresh buying. Speculation on QE should be supportive for the periphery in January while a key risk to performance could come from a step up in political uncertainty in Greece (however markets have taken a constructive approach so far).
■The last chart on the right shows that, even in years with strong FI rallies in 4Q, the following January was not dominated by profit taking.
■The rationale behind the observed regularity in January is that investors need to allocate their portfolios for the year, while issuers (especially in the EMU) tend to front load their activity. This leads to a fairly lively trading activity (this is more the case for the EMU). Coupon payments in Germany also contribute to create investment needs.
■The chart below shows the average total return and standard deviation on sovereign bonds (7-10Y bucket) since 1999. January is a good month to stay long EGBs: total return has been positive 65-75% of the time and positive on average. The UK is an exception: returns are on average slightly negative and they have been 50% positive and 50% negative.
■In the EMU, Italy and Spain stand out as the best picks (we have removed the stunning positive performance of BTPs in January 2012). The outperformance vs. Bunds has been 0.36% and 0.42% on average.
■While seasonality argues strongly in favor of being long bonds, it is less clear cut to draw conclusions on curve movements. If we remove January 2009 from the sample (when the ECB was cutting rates) and January 2012 (a period of high market volatility), evidence is fairly mixed, with considerable volatility around the average. If anything, seasonals suggest there is an 85% probability of seeing the 10/30 BTP steepening.
