In the first minutes following the opening of the European financial markets on Wednesday 20 May, the spread between Italian BTPs and German Bunds reached 77 basis points, a slight increase compared to the opening of the previous day. The yields of both securities grew, with the Italian ones reaching 3.94%.
Even in the rest of Europe, government bonds followed similar trajectories, with an increase in average coupons but a differential varying by only a few points. The conflict in Iran, which is determining the recent changes in the spread, continues to be at a standstill, while good news is arriving on the tariff front.
Spreads rise modestly, yields increase
The spread between BTPs and Bunds has remained substantially stable in the last 24 hours. The spread opened at 77 basis points, close to yesterday’s levels. What changed, however, was the yields, which grew by a few hundredths of a point for both Italian and German government bonds.
The trajectory of the spread continues to follow that of the negotiations in Iran. The war, and the closure of the Strait of Hormuz, determine the economic prospects of the near future for Italy and all of Europe and, consequently, without developments, in one direction or another, from the peace talks, there could hardly be movement on the bond markets.
However, a factor that could influence the trend of the spread on May 20th is the agreement reached between the EU and the USA to avoid new duties compared to those agreed in Scotland last year.
Stable European spreads, markets on hold
Even in the rest of Europe, at the start, government bonds remained effectively stable. The Spanish Bonos moved to 43 basis points from the Bund, while the French Oat to 64 points. The trend then started to be parallel again, with similar increases and decreases between the two largest European states as well as Italy.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.17% | – |
| Italian BTPs | 3.94% | 77 |
| French Oats | 3.81% | 64 |
| Spanish bonos | 3.60% | 43 |
For both France and Spain, government bond yields seem to have found, at least in part, a certain stability relative to German ones. The war in Iran had brought a period of unpredictability, with sudden drops and increases in the spread, which now seem to be normalizing.
The end-May auctions of BTPs and BOTs
The last auctions of the month for BTPs and Bots will be held starting from May 26th. With yields rising towards 4%, these issues could be an opportunity for many investors interested in Italian public debt. The high coupons could also resolve, at least in part, the slight demand problems that emerged in the latest auctions, with some products stopping below the 1.50 ratio between bids and offers, set as the minimum limit for healthy demand.
The precise dates of the auctions, by type of product offered, are:
- 26 May, Short Term BTP auction;
- May 27, Bot auction;
- May 28, auction of medium-long term BTPs.
