During the first minutes of the markets opening on 8 July, the spread between Italian BTPs and German Bunds exceeded 80 basis points, as it had not happened for weeks. The new attacks between Iran and the USA in the Middle East and Donald Trump’s attitude at the NATO summit in Ankara contributed to this instability.
The yields of Italian securities also increased significantly, reaching 3.83%, one of the highest figures of the last year. The July government bond auctions will also begin tomorrow, with BOTs followed by medium and long-term BTPs.
Spreads and yields at record levels, what’s happening
Both the spread between BTPs and Bunds and the yields on Italian securities reached levels among the highest in the recent past at the opening on 8 July. The differential exceeded 80 basis points, something that had not happened since May 5th, when the war in the Middle East was still in full swing.
For yields, the spike was even more significant. Interest on the benchmark 10-year BTPs reached 3.83%, a level exceeded only on the occasion of some very brief peaks in the last year. The last time BTP yields were this high for an extended period of time was the summer of 2024.
Things are no better for German government bonds. Bunds returned above the 3% yield threshold, reaching 3.03%. This is not a record like for the BTPs, but it is still a significant result, fueled by fears of a resumption of hostilities in the Middle East and by the clashes between Trump and European leaders at the Ankara summit.
The Spanish spread collapses, France increasingly closer to Italy
In Europe, Spanish Bonos stood out for having resisted the wave of increases in yields better than the rest of the continental securities. Madrid’s 10-year bonds limited coupons to 3.42%, leading the spread to drop by almost 10 basis points, to 38, one of the lowest in recent months.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 2.03% | – |
| Italian BTPs | 3.83% | 80 |
| French Oats | 3.80% | 77 |
| Spanish bonos | 3.42% | 38 |
French OATs, however, continue to follow the trajectory of BTPs and are approaching Italian yields and spreads. Interest on Paris bonds is at 3.80%, while the spread has reached 77 basis points.
Upcoming auctions, what to expect
The July government bond auctions begin tomorrow. We start with the Bots, and then continue with the medium and long-term securities, which will be:
- a 3-year BTP;
- a 7-year BTP;
- a 15 year BTP.
The expected annual coupon is between 3% and 4%, but the returns could be higher if the trend indicated by the opening data were to be confirmed in the coming days. The July auction dates are:
- 10 July auction of medium and long-term bonds;
- 28 July auction of Short Term BTPs and BTP€i;
- July 29th Bot auction;
- July 30 auction of medium and long-term bonds.
