The spread between Italian BTPs and German Bunds fell again at the start of May 7, reaching 10 points below the levels at the beginning of the week. The spread reached 74 basis points in the first minutes after markets opened, marking its lowest point since mid-April. Yields also collapsed, dropping to 3.71% one week after the first auctions in May.
The positive reaction of the bond markets has spread not only to Italy but also to the rest of Europe, and is due to the progress of the peace talks between Iran and the United States. Today, Tehran is expected to respond to Trump’s proposal to end the conflict.
Spread between BTP and Bund at lowest since April
Since last April 17th, and in any case for a very short period, the spread had not fallen to such low levels. On the morning of May 7, the spread between Italian BTPs and German Bunds reached 74 basis points, with a drop of more than 10 points compared to the beginning of the week.
This is the effect of a sharp drop in yields at both an Italian and European level. The 10-year benchmark BTPs have in fact reached interest rates of 3.71%, another level that has not been recorded for weeks. At the same time, however, German Bunds also fell below the psychological threshold of 3%, returning to 2.97%.
It is the effect of the 14-point peace proposal that the United States presented to Iran and which, fundamentally, proposes to stop the war immediately and to open talks on the points on which the two countries have strong disagreements, such as nuclear power, at a later time, probably starting 30 days after the agreement. However, it is a so-called memorndum of understanding, therefore a non-binding agreement.
Yields also fell in Spain and France
As mentioned, the drop in yields due to the improvement in the international situation involved the entire continent. In Spain the Bonos reached a 3.41% yield with a spread of 44 points, effectively identical to that of yesterday. The reduction in interest between Madrid and German government bonds was therefore parallel.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 2.97% | – |
| Italian BTPs | 3.72% | 74 |
| French Oats | 3.60% | 63 |
| Spanish bonos | 3.41% | 44 |
The pace of the French Oat was slightly better, reaching a yield of 3.60%, with a spread of 63 basis points. Again, the change compared to the opening results of May 7th is minimal.
The next auctions of government bonds
The reduction in yields is excellent news for the Treasury, which is preparing for the first traditional auctions of BOTs and BTPs in May, scheduled for the middle of next week. In fact, in the latest issues, despite much higher yields than in the past, some products had shown a weakening in demand from investors.
The dates to mark on the calendar for May are:
- May 12th, Bot auction;
- 13 May, auction of medium-long term BTPs;
- 26 May, Short Term BTP auction;
- May 27, Bot auction;
- May 28, auction of medium-long term BTPs.
