The spread between Italian BTPs and German Bunds narrowed slightly, reaching 116 basis points, compared to the 117 at which the differential ended last week. However, the most important data comes from the yields: a substantial drop that brings them back below 4.50% for the first time since the end of September.
It has helped the price of oil, with WTI returning to 100 dollars a barrel, but neither the fears of an escalation in the Middle East nor the pressure on the bond markets which are the basis for the record levels of 10-year BTP yields have subsided.
The spread began to decline again, especially thanks to oil
It was a positive opening for the spread between Italian BTPs and German Bunds and in general for Italian government bonds on the bond markets. The spread fell to 116 basis points, but yields especially fell, reaching 4.49% for 10-year bonds. A drop below the 4.50% threshold in contrast to last week’s closing trend.
Since the end of September, therefore more than a month, 10-year BTPs have not fallen below this threshold. A good sign for the Treasury, which is continuing to face higher-than-expected yields, and therefore additional debt expenses, just as many BTPs sold before 2022 are expiring, with very low yields.
Because the spread depends so much on oil
Oil also fell in the morning, with WTI returning to around 100 dollars a barrel. It is no coincidence that spreads and crude oil are linked. The markets evaluate the energy crisis as the main danger for the European economy. A high oil cost means more inflation, more likely interest rates to rise and, as a result, a slower growing economy.
A slowdown in GDP growth aggravates the main parameter of public finance health, the deficit/GDP ratio. As a result, pressure is increasing on sovereign debts, which are in a moment of difficulty in Europe.
Spreads in Europe still falling
The problem of high yields on government bonds is therefore European, as demonstrated by the data from the other large countries that adopt the euro. In Spain, Bonos are 62 basis points away from Bunds, with yields of 3.95%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.33% | – |
| Italian BTPs | 4.49% | 116 |
| French Oats | 4.97% | 164 |
| Spanish bonos | 3.95% | 62 |
French OATs, which are always the securities under most pressure, have a spread of 164 and are struggling to keep yields below 5%.
The November auctions of government bonds
Once the October auctions are over, there will be a week’s break. However, regular issues of Italian government bonds will begin again shortly before the middle of the month. The complete calendar of BTP, BOT and CctEu auctions is:
- November 11th for the Bot auction;
- November 12 for the auction of medium and long-term bonds;
- November 25th for the auction of Short Term BTPs and BTP€i;
- November 26th for the second Bots auction;
- November 27 for the second auction of medium and long-term bonds.
