The spread between Italian BTPs and German Bunds fell to 106 basis points at the opening on November 5, due to a collapse in yields, which reached 4.32%. This reduction followed that of the price of oil, which reached 87 dollars a barrel, 20 less than a few days ago.
It deals with the consequences of the midterm elections in the USA and above all with the analysis of the defeat by Vice President JD Vance, who put the war in Iran first among the reasons why Trump’s electorate abandoned the Republican Party en masse.
The decline in the spread and yields of government bonds
The morning of November 5th was one of the most positive for the spread and yields of Italian government bonds for several weeks. Compared to 24 hours earlier, the differential with German Bunds fell by six basis points, going from 112 to 106. Yields, however, lost 11 tenths, going from 4.43% to 4.32%.
The pressure on government bonds is therefore alleviated, thanks above all to the price of oil. In the morning, WTI fell to 87 dollars a barrel, the lowest price in over two months. This eases concerns about inflation and a further slowdown of the Italian economy.
What caused the spread to collapse
Behind the collapse in the price of crude oil, and therefore that of the spread and yields of Italian government bonds, there are some simple statements. A post on social media by US Vice President JD Vance, who indicates the war in Iran as the main cause of the historic defeat suffered by the Republican Party in the mid-term elections.
Statements that remove the possibility that the United States will resume bombing Iran, with the foreseeable consequences that these actions would have on the traffic of oil tankers in the Strait of Hormuz.
The spread also falls in the rest of Europe
Even in Spain the spread between Bonos and Bunds has reduced, although less than what happened in Italy. The spread went from 59 to 57 basis points, with yields below 3.84% for Madrid government bonds.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.26% | – |
| Italian BTPs | 4.32% | 106 |
| French Oats | 4.80% | 154 |
| Spanish bonos | 3.83% | 57 |
However, the reduction in the French spread was clear. OATs have been the securities most under pressure for months, but yields are now around 20 tenths from the 5% threshold, which had raised concerns about French debt and led to speculation of a quantitative easing intervention by the ECB.
The next auctions of Italian government bonds
This reduction in government bond yields gives breathing space to the Treasury, which has found itself forced to hold auctions with very high yields in recent months. In November, regular government bond issues will resume from the second week of the month. The dates to note 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.
Furthermore, today 5 November, the Treasury announced a repurchase of 5 billion in government bonds between CctEu and BTP.
