The spread between Italian BTPs and German Bunds reached 78 basis points in the first minutes of the opening on 8 June. The spread increased by two points from Friday’s close, with yields well above 3.8%, settling at 3.84%.
The uncertainty that has manifested itself on the markets is mainly due to two factors. The first is the mutual attacks between Iran and Israel in the Middle East, which are jeopardizing the ceasefire. The second is the ECB’s imminent monetary policy decision, which could raise interest rates to combat inflation.
Spreads and yields are growing
The opening of the markets on 8 June brought an increase in the spread between Italian BTPs and German Bunds. The spread increased two basis points from Friday’s close to 78 points. The upward trend in the spread trajectory is confirmed, which had already started, albeit slowly, last week.
Compared to the last days of trading, however, yields behaved significantly differently. There has in fact been a sudden increase in interest on government bonds, both Italian and German. The Bunds yielded 3.06%, while the benchmark 10-year BTPs yielded 3.84%. Respectively, the two stocks exceeded the thresholds of 3% and 3.8%, below which they had managed to remain for days.
One of the elements that has determined this rise in yields is the war in the Middle East. Overnight, Israel and Iran exchanged their most intense attacks since the start of the ceasefire. Tehran struck the Jewish state in retaliation for the IDF attacks on Beirut. Israel responded by striking military sites in three different Iranian cities.
The opening of European spreads
France and Spain have also been affected by Middle Eastern instability. Paris Oats reached a yield of 3.73%, with the spread widening to 67 basis points. The Spanish Bonos were less volatile, but limited the increase in yields to 3.50%, with a spread of 44 points on the Bunds.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.06% | – |
| Italian BTPs | 3.84% | 78 |
| French Oats | 3.73% | 67 |
| Spanish bonos | 3.50% | 44 |
European bond markets remain awaiting the ECB’s decision on interest rates, which should arrive on June 11th. All signs point towards an increase in the cost of money to 2.25% to combat inflation.
This week the first auctions of June
The first auctions of government bonds for June will be held on Wednesday 10th. We will start with the Bots, and then continue with the medium and long-term auction. The dates to note are:
- Wednesday 10 June, Bot auction;
- Thursday 11 June, medium-long term auction;
- Wednesday 24 June, auction of Short Term BTPs and BTP€i
- Thursday 25 June, Bot auction;
- Friday 26 June, medium-long term auction.
Furthermore, between 15 and 19 June there will be an extraordinary issue of Btp Italia Sì, government bonds dedicated to private investors and indexed to inflation.
