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Types of Letters with a downward trend? Experts prevent them from staying high

Date: September 29, 2023 Time: 17:10:59

Up to now, the yield of Treasury Bills has been the great side of investors to compensate for the low remuneration that banks offer for deposits. The queues at the door of the Bank of Spain to take over the events for more than half a year and the auctions continue to be filled with requests. But, these levels of profitability have begun to drop, just one tenth in the nine-month titles (3.7%) and stagnant in the rest, with the unknown of knowing what their path will be in the coming months for which auctions have been announced for Part of the Treasury.

On the other hand, far from any fear, analysts and the market do not fear this ceiling and predict that the profitability of the Letters will remain at the highest levels at least until the end of this year and the beginning of next year, indicates the director of Nextep Finance strategy, Víctor Alvargonzález. On the other hand, from XTB Spain, Manuel Pinto assures that, “the next economic data will have to be carefully analyzed for the beginning of the first half of 2024”.

All this is due to the fact that, up to now, there is no signal from the European Central Bank (ECB) when it comes to lowering interest rates, “zero chances in the short term that Christine Lagarde will reduce rates”, asserts Víctor Alvargonzález. Therefore, the scenario that is expected five months from now is that the Treasury remains firm in the percentage of its interest rates without hardly observing an upward movement, as indicated by the expert. However, crossing the month of January, that is, six months ahead, this indicates that profitability may drop in the first half of 2024, “we think they would give less benefit than they are offering now.”

This is the move that the ECB is expected to carry out

After establishing nine consecutive increases in interest rates, the next ECB meeting “will be key for the markets,” says Manuel Pinto, an analyst at XTB Spain. However, despite the fact that there is no clear position on its next move, as indicated by both experts, there is a lot of indecision within the ECB between raising interest rates once again or leaving them as they are and keeping them stable, for which it has Please carefully analyze the upcoming economic data.

However, in autumn “we could see new rises in inflation given the base effect of the past, when the price of raw materials had already fallen by this time,” points out the XTB expert, who recalls that in recent weeks the evolution of raw materials, quoting oil and natural gas, have surprised the market with vertiginous rises, mainly the latter due to the strikes in Australia. Therefore, the experts interviewed by ‘La Información’ anticipate that the ECB will try to fulfill its main objective, which is to control inflation by raising rates once more before the end of the year.

Experts expect rates to drop by early 2024

Regarding the demand for Treasury bills, which until now was increasing, the market is convinced that investors will continue to be interested in contributing to this type of debt. In addition, the pension plans and investment funds will incorporate the investment of the Letters into their products, according to what they point out from XTB.

That is why, once the consequences and the current situation can be analysed, the experts believe that from that moment on, the interest rate will be lowered. If activity worsens and the markets correct, the investor will shift part of his investments to assets considered safe havens such as sovereign debt”, points out Manuel Pinto.

In addition, in the event that the economic situation weakens at the beginning of 2024 and rates need to be lowered, “we could reinvest the interest and principal of the short-term bills to incorporate a little more duration in our portfolios with letters at a higher term”, recommended from XTB.

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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