ENEL: Being pushed on the LONG side here by cash trader and derivs… in a nutshell, Italian yield move should help Utils, great correlation to Italian 10year (BofAML)

With the animal spirits back and rightly so in the market and with the above ML call we are cutting our position for a 4.5% loss. We were short in the first place on a macro and rates call due to European QE not being outright purchases of gov bonds we thought rates would go up. Think ultimately they still will. Closing for now and will keep an eye on Italian rates… We will be back!



Thursday • 15 May 2014 • 16:18

ENEL has an almost 1 to 1 correlation to the Italian bond price.

The more we find out about the European version of QE it seems the most efficient/likely way will be through lending channel. ABS purchases will be the way they go.

The latest peripheral bond yield move has come from a combination of low growth and inflation expectations, and a front running of QE as a result.

But with no marginal buyer of bonds in a European QE scenario, and the prospect of higher growth and inflation, do peripheral yields actually go up as this starts to be priced in?

Could be an interesting dynamic for over levered sectors without pricing power like Utils which have been on fire due to spread tightening.

Short ENEL anywhere above 4 and watch the Italian bond price.