Donald Trump’s long-awaited speech to the nation regarding the war in Iran did not follow up on statements the US president had made less than 24 hours earlier. Thus, at the opening on April 2, the bond markets returned to the instability that characterized the entire period of the war in Iran. The spread between BTPs and Bunds reached 90 points, with yields returning close to 4%.
The stock and energy markets also reacted in the same way, with a collapse in European indices and a jump in oil prices. Italy has also demonstrated once again that it is more exposed to these fluctuations than other countries.
The spread between BTP and Bund fluctuates on Trump’s words
In the speech delivered during the Italian night, Trump did not clarify in any way what the US exit strategy from the war in the Middle East is. He spoke of bombings that will take Iran “back to the stone age” and of “two or three weeks” of operations, which is a time horizon that the US president has used in the past in situations where he didn’t know exactly how long a situation could last.
The result was a further wave of instability in bond markets. The yields on 10-year benchmark BTPs increased by around 15 hundredths of a percentage point, almost reaching 4%, while Bunds slightly exceeded the 3% threshold. The result is a 90-point spread opening on April 2, which erased all the progress made by the spread yesterday.
The financial markets also reacted badly. All European stock markets opened in negative territory after recording strong gains at the close yesterday. Brent crude oil from the North Sea has returned well above 100 dollars a barrel, however remaining far from the 120 dollars of recent days and settling around 110.
Because Spain and France are more stable
The spreads of Spain and France also increased, but less noticeably than the Italian one. The Madrid Bonos went from a spread of 46 points to one of 50, the French Oat from one of 68 to one of 71. In general, during this month of war, BTPs proved to be much more volatile than other European government bonds.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.03% | – |
| Italian BTPs | 3.93% | 90 |
| French Oats | 3.79% | 71 |
| Spanish bonos | 3.54% | 50 |
The reason lies in the particular exposure that Italy has to this war. Spain and France have invested heavily in renewable energy and nuclear energy respectively and this protects their economies from changes in gas prices. This adds to a better debt situation than the Italian one and explains why Bonos and Oat are more stable than BTPs.
The next BTP auctions
As early as next week, the effects of this volatility could become concrete in the BTP and BOT auctions at the beginning of the month. Furthermore, European markets will be closed on both Friday 3 and Monday 6 April for the Easter holidays and therefore will not have much time to adapt to any changes. The dates of the next auctions are:
- the Bots auction on April 9th;
- the auction of medium and long-term BTPs on 10 April;
- the auction of Btp Short and Btp€i on 24 April;
- a new Bots auction on April 28;
- on April 29th the last auction of the month, again of medium and long-term BTPs.
