BlackRock fixed maturity Italian BTP ETFs: Timely for tactical opportunity

Investors may look to hedge an inflationary uptick

Jamie Gordon

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The latest round of BlackRock fixed maturity ETFs marks the first targeting Italian BTPs, which could prove useful for investors looking to target Europe’s highest yielding sovereign market while being more selective on duration.

The iShares iBonds Dec 2026 Term € Italy Govt Bond UCITS ETF (26TP) and the iShares iBonds Dec 2028 Term € Italy Govt Bond UCITS ETF (28IY) listed on the Deutsche Boerse last week with total expense ratios (TERs) of 0.12%.

Europe’s first two fixed maturity ETFs capturing Italian sovereigns track the ICE 2026 Maturity Italy UCITS index and ICE 2028 Maturity Italy UCITS index, enabling investors to target specific maturities while benefitting from ETFs’ diversification, transparency and liquidity benefits.

Interestingly, the products could also prove valuable from a market as well as methodological perspective, with Saxo Bank fixed income strategy head Althea Spinozzi stating the higher yield offered by Italian BTPs gives them an added inflation hedging benefit versus other European sovereign bonds.

“This high yield makes Italian BTP attractive as a ‘safe haven’ asset if inflation persists, as they provide a stronger hedge against inflation,” Spinozzi said.

She added yields on two-year Italian BTPs, yielding 3.5% as of 22 April, would need to surge beyond 12% for an investor to incur a loss within a one year holding period.

At launch, 26TP and 28IY boast yields of 3.44% and 3.41%, respectively.

The two ETFs also debut as concerns about resurgent inflation linger. While EU core inflation hovers near 3% and markets have priced in a first European Central Bank (ECB) rate cut in June, a dovish turn from the ECB would weaken the euro.

In combination with commodity price hikes ahead of potential conflict escalation in the Middle East, the risk of a second uptick in inflation risks a further revision of the ECB’s cutting cycle – which has already been revised from seven to two cuts since the start of 2024.

Past repricing of rate cuts saw 10-year German bunds decline around 2% between the start of the year and 20 April, however, Italian BTPs remained stable through the same period, Spinozzi said.

“This outperformance can be attributed to the fact that Italian BTPs offer the highest yields among European sovereign bonds.

“Additionally, they would benefit from their correlation with the bunds in the event of heightened tensions in the Middle East.

“Recent years have shown that higher-yielding fixed income securities, such as junk bonds, have demonstrated resilience in the face of high inflation.”

Prior to the latest round of fixed maturity launches, the iShares iBonds Dec 2028 Term € Corp UCITS ETF (IB28) and the iShares iBonds Dec 2026 Term € Corp UCITS ETF (IB26) have been the most popular ETFs in the range, claiming $919m and $658m assets, respectively, as investors look to lock in higher yields while remaining below benchmark neutral duration.

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