Financial Markets Report – November 19 / 26, 2024

BTP Valore, BTP Green, or more simply BTP, 2024 was a record year for new issues of Italian government bonds, which enticed everyone: funds, institutions but also private citizens hunting for safe yields.

The year 2024 will be remembered as an extraordinary year for Italian government bond issuance, with BTPs (Multi-Year Treasury Bonds) experiencing record levels of investor demand and interest.

In particular, different categories of BTPs, such as the BTP Valore and BTP Green, have consolidated Italy’s role in the European and global financial landscape.

Among the most notable results were the issues of the 10-year BTP and the BTP Green. The former attracted demand in excess of 140 billion euros, while the latter, with a 20-year maturity, garnered demand close to 130 billion euros.

Overall, the collection reached about 270 billion euros, marking an all-time record for the country.

The success of these bonds reflects not only the attractiveness of Italian government debt, but also the growing investor awareness of sustainable financial instruments. The BTP Green, in particular, is a clear signal of Italy’s commitment to supporting the ecological transition by financing projects related to environmental sustainability and carbon emissions reduction.

The record year for bond issuance was also made possible by a global economic environment that fostered interest in safe, high-yielding instruments. Italy was able to take advantage of this scenario, offering securities with competitive and solid yields, capable of attracting both institutional and retail investors.

During 2024 Italian citizens were attracted not only byyields on the 10-year bond that exceeded 4 percent gross at certain times, but also by the tax breaks the instrument allows on realized capital gains: 12.50 percent tax on capital gains, less than half the 26 percent tax rate for corporate bonds.

To better understand the dynamics related to BTPs, let us see below concrete examples on two instruments purchased on the same date, with the same coupon, at the same price, and with the same maturity.

The political unknowns (Ukraine, Middle East, Syria) remain so even though there have recently been signs of concrete attempts at peace, especially with regard to the ongoing negotiations between Israel and Hamas.

Indeed, the year 2025 could be characterized by the search for new international balances with ongoing assessments of what role the European Union could acquire in the face of a possible U.S.-China economic confrontation. For the EU, the pillars of development have long been energy, defense, and technological innovation in addition to the acceptance of the realization that in the face of giant financial markets that will face each other globally (U.S.-China), the only chance for autonomy lies in a strong and cohesive Union.

Trump could probably try to approach NATO countries individually, precisely to undermine European cohesion, and this possibility will be a very important focus of attention in the year to come, not least because upcoming votes, for example in Germany, could create further political turmoil after those that have already emerged first in Spain and then in France.

Even Trump’s recent statements on Canada and Greenland (the tycoon reportedly expressed a desire to annex the two countries using force if necessary) would seem to be more part of a propaganda context than a real expansionist desire, which moreover would violate international law, but could still be enough to destabilize the international framework if repeated.

India appears to be increasingly strong and growing (+ 6% GDP) with a very dynamic economy and is now an effective regional competitor to China, now with an established international dimension taking into account that the Indian stock exchange has even larger volumes than those of Europe and the United States, as well as a significant number of IPOs in 2024 testifying to the growing interest of savers.

On the monetary side, the FED has reportedly announced only two cuts in 2025 (fewer than previously planned), while the ECB has planned to follow up, with four cuts planned by the end of the year, and this could constitute a possible further spread in the cost of money between the United States and the European Union. One of the main reasons for this change in strategy is that theU.S. economy appears to be growing strongly, while the Europeaneconomy is still unresponsive.

In 2025 we will be able to assess the first applications of artificial intelligence in the various economic and social sectors, which are then expected to develop significantly in 2026. This technological paradigm shift also has unknowns related to the actual impact on production chains in terms of outcomes, the real effects in terms of employment and ultimately also the real governability of this technology.

The Italian economy and public debt: a pair that has become almost indivisible for years now.

Indeed, as far as our country’s economy is concerned, public debt is among the central (and ‘driving’) issues of the various assets that also drive the domestic market, but not only that.

Is it true that Italy is one of the most indebted countries? What is the ratio of Btp to public debt?

To take stock of the current situation, it should be pointed out that we are talking about a debt of more than 2.8 trillion euros, more or less 145 percent of GDP. As a result, yes, it is true, Italy is rightfully among the countries with the highest level of debt in the world.

Update December 9, 2024

Internationally, areas of crisis remain even though Trump has said that he believes he can at least achieve a truce in both Ukraine and the Middle East.

Later in the week, the collapse of the Syrian government opened a new front of crisis even as the international placement of the rebels who have taken over the country is currently unclear.

Their Chief Al-Jolani comes from a wealthy family and was educated in Western institutions but in the past he has also glorified 9/11.

For now it is too early to understand the positioning of the new government being formed. In fact, Assad has left the scene by seeking asylum in Russia.

The year 2024 proved to be a decidedly interesting year for bond markets, with some categories of funds performing remarkably well on the back of favorable macroeconomic conditions, stable interest rates, and renewed confidence in high-yield issuers.

The performance of bond funds in 2024 reflected a combination of macroeconomic factors, including favorable monetary policies, improving fundamentals in some geographies, and more careful risk management by investors.

In this article, we will take a quick overview of the types of bond funds that shined the brightest during the year.

Week 12 November / 19 November 2024

The trends recorded on the stock markets over the past week certify that the positive effect resulting from Trump’s election was less impactful than it seemed and persisted for a very short period.

Only on the currency side for now is the effect significant with the dollar appreciating sharply from about 1.09 to about 1.05.

Probably the reason for this substantial negative response has to be found on the fact that the U.S. economic picture is much more complex than what was present in the first term because the public accounts are suffering, the debt-to-GDP ratio is at 122% from 106%, and the deficit has increased from 3.10% to 6.7%.