The spread between Italian BTPs and German Bunds reached 84 basis points at the opening of July 20th. This is the highest level since the March crisis, and also comes in conjunction with the increase in instability in the Middle East and the intensification of fighting between Iran and the USA.
Yields briefly rose above 4% at the opening, reaching March levels, only to then return to just below the threshold which, before this crisis, had not been reached for two years. The next BTP auctions are just under a week away.
The spread does not stop and yields reach record levels
The last time the spread reached 84 basis points, Donald Trump was talking about a land invasion of the Iranian coast of the Persian Gulf. Even if the situation in the Middle East is no longer so unstable, the spread between Italian 10-year benchmark BTPs and their German equivalents has reached levels not seen for months.
Because the spread continues to grow
Although 84 basis points historically remains a low spread level, the spread had reached close to 60 points before the Middle East crisis. Italy, however, is very exposed to international energy markets and this makes it particularly sensitive to what happens in the Persian Gulf.
The closure of the Strait of Hormuz makes our country’s economy particularly unstable, also in view of the winter, given that a significant part of the gas consumed for heating and for the generation of electricity from thermal power plants passes through there.
Yields haven’t been this high in two years
In the morning, yields of 4% were recorded for the benchmark 10-year BTPs. A level seen only for very short periods in March at the outbreak of the war between the USA and Iran. This is a sign of investor distrust in our country and in the stability of its economy. Before today, you have to go back to 2024 to find similar returns.
The problem is not so much the war itself, which has not yet reached the intensity levels of the first weeks, but its duration. Analysts, until a few weeks ago, hoped that talks between Iran and the US would lead to a quick solution. Now that hostilities have resumed, there are fears that the Strait of Hormuz will remain closed for months.
European spreads, good in Spain, peak in France
The growth of the spread is also limited by the behavior of German Bunds, which form the basis for comparison with BTPs and other European securities. Berlin yields are hovering around 3.13%, about 15 cents of a point above the recent average. Spain took advantage of this, with Bonos remaining relatively stable at 48 basis points.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.13% | – |
| Italian BTPs | 3.97% | 84 |
| French Oats | 4.01% | 88 |
| Spanish bonos | 3.61% | 48 |
France, on the other hand, is suffering the consequences of the approaching presidential elections in a context of great uncertainty. The OAT spread reached 88 points with yields steadily above 4%.
When will the next government bonds be issued?
Fortunately for the Treasury, this moment of tension on the markets does not correspond to an issue. The next auctions of government bonds will in fact be held in more than a week. In the meantime, yields could reverse the trend. If this were not the case, however, it could be an important opportunity for investors, who would pay significant coupons. The dates to note are:
- 28 July auction of Short Term BTPs and BTP€i;
- July 29th Bot auction;
- July 30 auction of medium and long-term bonds.
