The first reading of the spread between BTPs and Bunds of the week stood at around 71 basis points, a result not seen since the beginning of March. The differential was drastically reduced after a very sudden drop in yields, especially on the Italian side, and the Bunds also returned below the psychological threshold of 3%.
The main reason for this decline is linked to hopes for a resolution to the conflict in Iran. In recent days the US has reported good progress in negotiations, even if Tehran continues to underline that it will not give up its civil nuclear program.
Btp-Bund spread at its lowest since the start of the war
Since the beginning of March, when the war in Iran was still in its second week, the spread between Italian BTPs and German Bunds had not reached 71 basis points as it did at the start of May 25th. The reduction in the differential was due to a decline in the yields of both government bonds which, however, was much faster for Italian ones.
The 10-year benchmark BTPs now have an average yield of just under 3.70%, while the Bunds have reached 2.99%, managing to return below the psychological threshold of 3%.
A drop that is a consequence of optimism regarding the possible reopening of the Strait of Hormuz, the same that led the Nikkei to set a new record in the morning. The US, in particular President Trump, is signaling an advanced state of negotiations with Iran, even if Tehran seems less optimistic.
Italy also recovers from Spain and France
Despite the drop in yields, in the rest of Europe spreads remained stable around the same figures as last week’s close. The Spanish Bonos reached 42 basis points with a yield of 3.41%, while the French Oat reached 62 basis points with a yield of 3.60%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 2.99% | – |
| Italian BTPs | 3.70% | 71 |
| French Oats | 3.61% | 62 |
| Spanish bonos | 3.41% | 42 |
Italy has therefore reduced its margin from Paris and Madrid, returning respectively to under 20 and 10 points behind the other large European countries. A step towards pre-war levels, which saw substantial parity with France and a distance of about ten points from Spain.
The last auctions of May begin tomorrow
Tomorrow the first government bond auction of the series will be held which will conclude the series of the last days of May. We will start with Short Term Btp and Btp€i.
| Government bonds | ISIN code | Expiration | Annual coupon | Maximum amount offered |
|---|---|---|---|---|
| Short Term BTPs | IT0005692410 | 02/28/2028 | 2.20% | 2.5 billion euros |
| Btp€ia 5 years | IT0005657348 | 08/15/2031 | 1.10% | 1.5 billion euros |
| Btp€ia 20 years | IT0005706293 | 02/15/2046 | 2.25% | 1 billion euros |
Auctions will also be held in the next few days:
- May 27th, Bot auction;
- on May 28th, auction of medium-long term BTPs.
In June, however, an additional issue of a new inflation-indexed product, the Btp Italia Sì, will be held from 15 to 19 June.
