The spread between Italian BTPs and German Bunds rose by five points at the opening on November 3, reaching 117 basis points. Government bond yields returned to those of the first minutes of yesterday’s session, canceling the progress made in the last 24 hours, which had brought the differential back to 112 basis points.
It is the effect of the US attack on the island of Qeshm, the most important in the Strait of Hormuz, in Iran. It is a small operation, which however scares the markets, which until yesterday were trusting the apparent openings between Tehran and Washington. This all happens on midterm day.
The USA attacks Iran, the spread rises again
On the night between 2 and 3 November the United States launched a drone attack on some military installations on the island of Qeshm, Iran, in the Strait of Hormuz. A limited but unexpected operation, which comes after days of rapprochement between the US and Iran. The result was that the spread between Italian BTPs and German Bunds burned away all the progress made yesterday at the opening.
After opening at 116 basis points, in fact, the spread closed at 112 on November 2nd. The 5 point jump was accompanied by a return of yields to the levels of the beginning of the week, just below the 2.50% threshold.
Why Bund yields are falling
However, yields on German government bonds fell. This is a dynamic that is quite well known on international markets. Bunds are considered very safe and are treated as safe haven assets in times of crisis. When investors face a period of uncertainty, they buy Bunds, causing their yields to drop. In addition to the American attack, making today even more uncertain are the midterm elections in the United States, in which Trump’s Republican Party could lose its majority in Congress.
How European spreads reacted
Also in Spain the dynamics of government bonds was similar to that of Italy. After an improvement yesterday, driven by the falling oil price, the Bonos returned to Monday’s opening levels.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.32% | – |
| Italian BTPs | 4.49% | 117 |
| French Oats | 4.96% | 164 |
| Spanish bonos | 3.94% | 62 |
Same situation in France, where OATs continue to be the European government bonds under greatest pressure from the markets. The 5% return recorded in recent weeks, however, remains far away.
The next auctions of Italian government bonds
After the traditional break at the beginning of the month, the auctions of Italian government bonds will resume starting from 11 November. The dates to mark in the calendar for the next issues are:
- 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.
