At the start of the week on November 9th, the spread between Italian BTPs and German Bunds is expected to decrease to 109 basis points. Yields, however, are essentially unchanged at those achieved at the end of last week, around 4.33%. Good results for Italian government bonds, which come from a period of difficulty.
The cause of this trend is the price of oil. With WTI at 90 dollars and Brent below 100, the spread tends to fall, as do the yields. Crude oil suffered its sharpest cost drop since 2020 over the past week, plunging 16%.
The spread has started to fall again, thanks to oil
On the morning of November 9th the spread between Italian BTPs and German Bunds began to fall again. Last week the differential had also reached 104 basis points, raising hopes of a return to the levels prior to the last peak. However, some tensions in the Middle East and the mid-term elections in the USA had caused the spread to return to over 110 points.
In the morning, the spread returned to 109 basis points, with yields stable at 4.33%. A good sign for the Treasury, which will hold the first auctions of November government bonds this week.
Crude oil drags the spread down
The decline in the spread accompanies one of the most sudden reductions in the price of oil in recent years. Last week Brent, which is the reference oil in Europe and therefore has a large impact on inflation estimates, lost 16% on international markets. We haven’t seen a similar decline since 2020. The price has stabilized below 100 dollars a barrel for North Sea crude, while the WTI aims to rise below 90.
How other European countries are doing
In Spain the spread continues to remain rather low. The differential is at 59 basis points, below the 60 point threshold and with yields of 3.83%, among the lowest of the large European countries.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.24% | – |
| Italian BTPs | 4.33% | 109 |
| French Oats | 4.77% | 153 |
| Spanish bonos | 3.83% | 59 |
In France, however, the situation is the opposite. Yields are at 4.77%, among the highest, and the spread has consequently reached 153 basis points. However, these are good results for Oat, which had achieved record returns in recent weeks.
The next auctions of government bonds
Government bond auctions will begin again this week. Details for the auction of medium and long-term bonds will be communicated today. The release schedule is as follows:
- Bot auction on November 11th;
- November 12th the auction of medium and long-term bonds;
- November 25th the auction of Short Term BTPs and BTP€i;
- November 26th the second Bots auction;
- November 27th the second auction of medium and long-term bonds.
