Italian Stock, Bond ETFs Look for Bounce Following Rout

Aug. 5.11 | About: iShares MSCI (EWI)

Volatile exchange traded funds indexed to Italian stocks and government bonds were poised for a slight rebound Friday after their sell-off this week.

Italy’s FTSE MIB was moving higher after Thursday’s rout on sovereign debt worries. Yields on 10-year Italian government bonds fell on Friday, FT.com reported.

The $113 million iShares MSCI Italy (NYSEARCA:EWI) plunged 8.6% on Thursday and is off 27% over the past three months. One of the latest reports on Italy from the Center for Economics and Business Research concludes that the country most likely can not avoid defaulting on its debt.

For the first quarter of 2011, Italy had an economic expansion of 0.1% and the second quarter is expected to be the same, at best. Scott Boyd at Seeking Alpha writes that the CEBR finds that if yields remain above 6% in Italy, which is required to attract investors, the debt to GDP ratio will surpass 150% by 2017.

Some analysts say the Eurozone rescue fund is large enough to provide aid to Spain. However, Italy’s economy is larger, with a debt volume two and a half times as large as Spain’s.

“I think the market is betting against Italy regardless of Berlusconi, but clearly the political situation doesn’t help,”said Lorenzo Crispoltoni, senior fund manager at Banca Fideuram in Milan, on Reuters.

Meanwhile, as of Thursday, some leading Italian companies lost up to 10% of their value, and the close of the benchmark, FTSE MIB, was not released after the market close.

iShares MSCI Italy (EWI)

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PowerShares DB 3x Italian Treasury Bond Futures (NYSEARCA:ITLT)


Tisha Guerrero contributed to this article.

Disclosure: None