The not-so-creeping process of de-euroisation | FT Alphaville

The not-so-creeping process of de-euroisation

The de-euroisation continues and is, in Italy at least, getting faster… these charts show foreigners running away from Italian liabilities in March at their fastest pace ever, and illustrate just how quickly the LTRO sheen has faded.

Italy’s March balance of payments, out on Monday, showed its biggest ever decline in portfolio liabilities and while Italian repatriation flows show no consistent sign of slowing they are not keeping up with the foreign pull-out from Italian portfolio instruments.

Source: Deutsche Bank

In their haste to divest, foreigners sold some €38bn of medium and long-term Italian bonds in March, bringing the cumulative foreign liquidation of Italian assets to €150bn since July 2011.

From Deutsche Bank’s Alan Ruskin (with our emphasis):

The data largely confirms what we have seen from the Target 2 data – that €268bn in LTRO borrowings (at the end  of April) are making up for the net long-term capital outflow as Italian debt increasingly becomes domestically held.  Italian Target 2 balances jumped €76bn to EUR 270bn in March and a further €9bn in April.

On the Italian portfolio account, the positive post LTRO glow lasted for only one month, with January the only month to record positive portfolio inflows since June 2011.   We do not have Spanish data for March yet, but Spain has not had positive foreign portfolio inflows since Feb last year.   Much more encouraging, France recorded sizable net portfolio inflows in February and March.  It is not likely that the Italian pullback is French repatriation, as France recorded only moderate portfolio repatriation of EUR 7.7bn in March.

Combine that with French balance of payments figures released last week, which show that foreigners bought a net €27.7bn of French assets in March, up from €18.8bn the previous month, and a picture of a one way flow remains hard to escape.

Related reading:
De-euroisation is (still) de problem – FT Alphaville
Funding Spain and the year of the negative feedback loop – FT Alphaville