Not Registered? Register Now.

1. My Profile >2. Additional Information

By submitting below you certify that you have read and agree to our privacy policy.

Macro Alerts

European bonds: Italian BTPs offer a leveraged bet on Bunds as investors remain unfazed about ‘Grexit’

24 Jun 2015

Languid reaction to repeated faltering Greek negotiations suggests that the notion of ‘Grexit’ has long been taken into account. It is German Bunds, not Greece, which remains at the epicentre of souring sentiment in Eurozone bonds. Heightened bond market volatility amidst a resilient euro reflects improving economic conditions in the Eurozone, defying fears of contagion risk from Greece. High sensitivity of Italian 10Y BTPs to German 10Y Bunds offer investors a leveraged play on the European bond market. Bearish positioning in Eurozone fixed income may be warranted. Leveraged short ETPs tracking German Bunds and Italian BTPs are efficient investments to play the theme. The languid reaction to the Greek debt crisis not only suggests that ‘Grexit’ has long been priced in, but also reinforces the notion that the bond volatility in European fixed income markets earlier this month was driven primarily by ‘irrational’ low yields in German Bunds (see last week’s macro alert for more detail).

Macro alert 240615

‘Eurozone bond yields sensitive to Bunds, insensitive to Greece’

Since the end of the financial crisis, the sentiment in Europe’s bond markets has increasingly been led by the strength of the German Bund and less by the weakness of Greek sovereigns. Following ECB’s QE, this has become more apparent given the diverging paths of bond yields between Greece and the rest of the Eurozone. This is not to say that on a short term basis sentiment in Greek sovereigns will not affect bond yields elsewhere in the Eurozone, particular in light of the repeated on-off debt negotiations between Greece and the Troika driving sentiment and provoking opportunistic positioningBut while correlations can be high, it is the sensitivity between bonds, in terms of their mutual impact on yields that really matters to investors, especially since while bond yields can be highly correlated, one can be insensitive to the other. As indicated in the chart, Italian 10Y BTPs have displayed a much greater sensitivity to German 10Y Bunds, with a beta coefficient of 2.3, than their Greek counterparts, which has a beta coefficient of 0.169. The insensitivity of yields between Italian 10Y bonds and Greek 10Y bond adds to the picture that Greece’s debt woes simply have not reverberated onto the peripheral Eurozone bond market.

Leveraged positioning on the Bund is how to efficiently play Eurozone’s bond markets

A disconnect between the ‘Grexit’ talk and the sentiment in the bond markets is also evident in the resilience of the euro, which has rallied to a monthly high against the U.S. dollar while European equities finished the week marginally higher. With negotiations between the anti-austerity Greek government and the Troika having dragged on for months, investors have had plenty of time to weigh up what a ‘Grexit’ means for the rest of the Eurozone. With Eurozone’s economy on sounder footing, any outcome is now unlikely to materially undercut it, given the extraordinary stimulus measures the ECB has put in place. Markets continue to shrug off the faltering talks between Greece and its creditors.

This presents an opportunity for investors to play Europe’s bond markets with a view on the German Bund and its irrational valuation, which suggests too much fear and crisis-like conditions being priced-in. Bond markets have experienced a sharp correction since April to date[1], with the 10Y German Bund rolling futures index down by 4.5%. Being highly sensitive to the German Bund, the 10Y BTP rolling futures index has seen an even steeper decline by falling 7.4% in the same period. 3BUS or 3BTS, which are 3x Short ETPs tracking the futures of 10Y Bunds and BTPs, respectively, have over the same period returned 13.8% and 24.4%, respectively. 3BUS and 3BTS offer investors a leveraged bet on the European bond market and an efficient means to tactically position bearishly amidst the heightened volatility in bond markets.

Investors sharing this sentiment may consider the following short ETPs:

All data is sourced from WisdomTree Europe and Bloomberg, unless otherwise stated.


WisdomTree Europe Ltd is an appointed representative of Mirabella Financial Services LLP which is authorised and regulated by the Financial Conduct Authority. The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. An investment in ETPs is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks. ETPs offering daily leveraged or daily short exposures (“Leveraged ETPs”) are products which feature specific risks that prospective investors should understand before investing in them. Higher volatility of the underlying indices and holding periods longer than a day may have an adverse impact on the performance of Leveraged ETPs.  As such, Leveraged ETPs are intended for financially sophisticated investors who wish to take a short term view on the underlying indices. As a consequence, WisdomTree Europe Ltd is not promoting or marketing BOOST ETPs to Retail Clients. Investors should refer to the section entitled "Risk Factors" and “Economic Overview of the ETP Securities” in the Prospectus for further details of these and other risks associated with an investment in Leveraged ETPs and consult their financial advisors as needed.  Within the United Kingdom, this document is only made available to professional clients and eligible counterparties as defined by the FCA. Under no circumstances should this document be forwarded to anyone in the United Kingdom who is not a professional client or eligible counterparty as defined by the FCA. This marketing information is intended for professional clients & sophisticated investors (as defined in the glossary of the FCA Handbook) only. This marketing information is derived from information generally available to the public from sources believed to be reliable although WisdomTree Europe Ltd does not warrant the accuracy or completeness of such information. All registered trademarks referred to herein have been licensed for use. None of the products discussed above are sponsored, endorsed, sold or promoted by any registered trademark owner and such owners make no representation or warranty regarding the advisability on dealing in any of the ETPs. [1] From 1 April 2015 to 18 June 2015, in EUR

Read More
Macro Alerts, Europe / Eurozone

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.


By submitting below you certify that you have read and agree to our privacy policy.