From the February elections to today, Italian citizens not only have not yet been able to see an agreement for the Government but there is not even a possible agreement for the President of the Republic on the horizon. In all of this the crisis and uncertainty about the future they make themselves felt, and how. The political impasse and the suffering national economic system correspond, according to all (rating agencies in primis) to non-negligible risk factors, which often have the most obvious manifestation in the spread (here all the differentials of the main countries). If you follow Advise Only on the blog or on Twitter, you will have noticed that our XNUMX-year BTPs are experiencing a period of relative grace: yields are decreasing and there are good exchanges on the market (BTP-Bund spread currently around 300 basis points).
Now the question is obvious: why at a time when the real economy appears to be collapsing, do our stocks behave as if everything is (relatively) fine? To give an answer, we have to move a few tens of thousands of kilometers: in Japan. Well yes! The Land of the Rising Sun, which we remember has the first public debt in the world, has started through the action of the Governor of BOJ, Haruhiko Kuroda, a phase of very aggressive expansionary monetary policy. The goal is to expand the country's monetary base by 100% by the end of 2014 and reach an inflation target of 2%.
Translated into simple words it means, more or less: load up the money-printing machines and… fire at will! The market thus finds itself flooded with liquidity, also causing the devaluation of the yen. Devaluation and high liquidity push the Japanese to invest in profitable assets, and these are almost always across the border. That's to say… Europe and USA! Buying US and German government bonds (which yield 1,7% and 1,2% respectively), however, is not enough and therefore… here is the magic! Japanese investors are shopping for Italian, French, Belgian and Austrian government bonds, "core" but not too much.
The graph shows a clear correlation between the devaluation of the yen, expressed by the euro/yen exchange rate, and the yield of the XNUMX-year BTP.
Obviously Japanese monetary policy is not enough to explain the phenomenon of the Italian spread. Part of the "merit" goes to the enormous liquidity placed on the market also by the other central banks. Bloomberg talks about an increase inM2 aggregate (notes and coins in circulation, checking deposits, bank and other deposits) of $22.300 trillion since 2007! Also contributing are the increasingly insistent rumors about a possible cut in interest rates by the ECB by the end of the summer and, not negligible, the interventions of the Monti Government which effectively secured the Italian public finances, considerably lowering the default risk of Italy and making our government bonds attractive again. Now, however, we need to intervene on social, industrial, institutional and economic policies. Ball to politics.
