In the first minutes of the opening on July 21st, the spread between Italian BTPs and German Bunds fell to 83 basis points, after the peak of 84 yesterday morning. However, this is a very high level for the spread, which has not exceeded the 80 point threshold for months.
Yields, however, continue to grow. The decline in the spread was in fact determined by a faster growth in interest on Bunds than that on BTPs. Italian bonds are progressively approaching yields of 4%.
The spread has stopped, the yields have not
After days of increases between last week and Monday 20 July, the spread showed signs of stabilisation. The spread has stopped growing, but this may only be a temporary reprieve. Because the war in the Middle East, which is causing this instability on the markets, could become “total” very soon, as reported by the US newspaper Axios. But also because yields, unlike the spread, have not stopped growing.
The spread’s run stopped at 83 basis points
The spread fell by one basis point, a sign of the rapprochement of BTP yields with those of German Bunds. Even the mere fact that the spread has stopped growing is positive and could indicate that the markets have found new stability around this figure, around 10 points above the level of the first weeks of July.
However, this could be a temporary truce. What causes these increases is the war in the Middle East and, secondly AxiosTrump is about to decide whether to accept the Gulf states’ proposal for a 10-day ceasefire, or whether to launch an “all-out offensive” on Iran with the support of Israel. In this second case, the markets could react with another flight from Italian debt.
Yields continue to rise
The decline in the spread was not determined by a reduction in Italian yields, but by an increase in German ones. The Bunds went from 3.13% to 3.15% yield, while the BTPs reached 3.98%. I reached 4% yesterday morning, followed by a rapid return, it’s getting closer and closer.
The spreads of other European countries
The rise in German yields also led to a decline in the Spanish spread. Madrid’s bonds are once again proving to be the most stable, and the differential with the German ones has been reduced to 46 basis points.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.15% | – |
| Italian BTPs | 3.98% | 83 |
| French Oats | 3.95% | 80 |
| Spanish bonos | 3.61% | 46 |
On the contrary, the French Oats continue to be the most unstable among the large European countries. After exceeding the 4% yield on Monday 20th, Paris securities returned to 3.95% on Tuesday 21st, bringing the spread to 80 basis points.
The next BTP auctions
To take advantage of the high yields of government bonds, for the moment, you need to turn to those already on the market. The auctions, and therefore the next issues, are still far away. In fact, the last ones in July will begin next week. 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.
