In the first minutes after the markets opened on 12 October, the spread between Italian BTPs and German Bunds remained substantially stable compared to Friday’s close. The spread is still at 110 basis points, with 10-year government bond yields at 4.56%.
An uncommon stability in recent weeks, characterized by strong volatility in the international bond market. The auction of medium and long-term BTPs will be held on Tuesday 13 October, which will give real feedback on how much this instability is affecting Treasury collections.
The spread remains stable and is new
It may not last, but at least for the opening on October 12th the spread between Italian BTPs and German Bunds remained stable. The differential settled at 110 basis points, the same as last Friday at the close. After the fluctuations, even extreme ones, of the last few weeks, this is an unexpected result.
What stabilized the spread
This is not so much a situation of calm in the bond markets, but rather of a standstill. The situation in the Middle East is not progressing, despite the recent Houthi attacks on Riyadh airport. Treasury Bonds are slightly below the 5.25% threshold, but only by a few thousandths of a point. The price of oil is falling thanks to the resumption of traffic through the Strait of Hormuz.
Yields are still high
Proof of the fact that the problems of the international bond market have not been solved are in yields. Benchmark ten-year BTPs are still quoted at more than 4.50%, much higher levels than those at the end of the summer and among the highest of the last decade. An additional expense for the State, which is about to issue three different Treasury bonds.
The auction on October 13th
An auction of medium and long-term BTPs will be held on October 13th which will account for the pressure of international markets on the Treasury’s fundraising. The titles available will be:
- a BTP expiring in 2029, therefore 3 years and a 3% coupon;
- a BTP with maturity in 2033, therefore 7 years and a coupon of 3.35%;
- a BTP with maturity in 2041, therefore 15 years and a coupon of 3.95%.
However, the yields will be much higher, even above 4% gross, a feasible forecast because all these issues are advanced tranches of securities already on the market, and therefore already priced.
The next auctions will be:
- the auction of medium and long-term bonds on Tuesday 13 October;
- the auction of Short Term BTPs and BTP€i on Tuesday 27 October;
- the Bot auction on Wednesday 28 October;
- the auction of medium and long-term bonds will be held on Thursday 29 October.
The other European spreads
The other European spreads also remained essentially stable at the opening. The Spanish Bonos posted a differential of 61 points.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.46% | – |
| Italian BTPs | 4.56% | 110 |
| French Oats | 4.83% | 137 |
| Spanish Bonos | 4.07% | 61 |
The yields of the French Oat are still high, but they are also stable. In fact, the spread remained at 137 basis points.
