With the October Non-farm payrolls stronger then expected, the Fed would probably hike rates in the December. That’s a buy opportunity for Italian BTP and Spanish bonos.
As you know I had some doubts the Fed would hike rates in December, but when you see you are wrong you’ve got to admit.
After unexpected payroll data, I have to say it is gone now. October payrolls soared by 271K, smashing not only consensus of 184K, but the highest expected print.
This was the highest monthly print since December 2014 when the gain was 329K and pushed the YTD average monthly gain from 199K to 206K.
The dollar has soared (EURUSD almost a 1.07 handle), bond yields in USA have exploded, with the 10y Treasury reaching 2,35% yield, stock prices in Europe did not react negatively as I thought but energy commodities across the board are getting hammered (WTI breaking the 45 USD level).
So what to do now?
I see the same reaction in euro area governative bonds, with Italian BTP reaching 1,75% yield and Spanish 10y bonos reaching 1.90%.
This is a selling opportunity for US treasury, and a buy opportunity for peripherals governative bonds in the euro area, and keep on buying also if you will see BTP 10y reaching 1,85% level.
That’s because in the medium term, further easing measures by the ECB should support bonos and BTP and lead to a flattening of the euro area curve.
Generic Italy 10y yield
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