The spread between BTPs and Bunds reached 122 basis points at the opening of October 22nd. This is the highest level of the spread for almost two years, but what is especially worrying are the yields on ten-year bonds. In the first stages of the start of trading, the benchmark ten-year BTPs reached 4.62%.
The figure is a few decimals away from the peaks of 2023, the recent record. To find higher interests on Italian government bonds you have to go to the debt crisis of 2008-2012, when the country was at risk of bankruptcy.
What’s happening to yields and spreads
There was a jump in the spread, due to a sudden increase in the yields of Italian government bonds. However, this is not an Italian problem, but a global one and, to a lesser extent, a European one. This is demonstrated by the fact that with yields having only been this high a handful of times since the euro existed, the differential with German Bunds is still relatively low, at 122 basis points.
The factors that are pushing yields so high are different and have little to do with Italian public debt:
- many companies and many states are borrowing a lot of money in a period in which central banks are limiting the circulation of money;
- inflation continues to increase, as does the price of oil, which has now returned above 110 dollars a barrel;
- French OATs have surpassed the historic yield record since the euro existed.
It is a mix of circumstances coming from the economy, finance and public opinion, which are simultaneously putting pressure on the entire bond market, both government and non-state.
Yields at 4.62% in perspective
The last time yields were higher than 4.62% was 2023, between September and October. Inflation was at 5.7%, the ECB had raised rates to 4.5%, Europe was heading towards its second winter without Russian gas and Trump was heading towards his second term in the White House.
If you want to find the previous time when yields were higher than today, you have to go back to the beginning of 2013. Italy was still emerging from the most serious financial crisis of the century, that of 2011, in which the country’s public debt had come under speculative attack while Europe suffered the consequences of the economic crisis triggered by the collapse of Wall Street in 2008.
France surpasses all performance records, Spain holds
That the crisis is international can be seen from the data from other European countries. Spain, which continues to be the most stable, has a differential close to 70 basis points and yields of 4.10%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.40% | – |
| Italian BTPs | 4.62% | 122 |
| French Oats | 5.05% | 165 |
| Spanish Bonos | 4.10% | 70 |
The pressure is greatest on France, weakened by out-of-control debt and political instability that has lasted for years. Oat yields exceeded the levels of the 2011 crisis, reaching 5.05%, with the spread at 165 basis points.
Another positive day for BTP Valore, the next auctions
Yesterday the third day of the issuance of Valore BTPs ended, with a collection that brought the total close to 12 billion euros for the Treasury. The next regular auctions will be:
- 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.
