The spread between Italian BTPs and German Bunds narrowed in the morning on November 10, reaching 102 basis points, one of the lowest figures since the end of September. The differential seems to have overcome the most critical phase experienced in October, during which yields also rose, reaching records that had rarely been recorded since Italy adopted the euro.
The drop in pressure on Italian public debt is also due to the reduction in oil prices. Crude oil reached $85 a barrel on international markets thanks to the prospects of peace in the Middle East.
The spread drops to its lowest since September
Since the end of September, the spread between Italian 10-year BTPs and German Bunds had not fallen to levels similar to those reached at the opening on 10 November. The spread reached 102 basis points, the lowest level in over a month, while yields reached 4.27%, still high overall but far from recent records.
During the month of October, ten-year BTPs had reached some of the highest peaks in the last 25 years. The cost of new debt was becoming a problem for the Treasury, as many bonds issued before 2020, when interest rates were at zero, are maturing.
The price of oil helps the spread
This decline in the spread is not caused by particular market confidence in Italy, but by a general easing of international pressure on the bond market and on the sovereign debts of developed countries. All this is possible thanks to the drop in the price of oil, which at 85 dollars a barrel has reduced fears of inflation.
This situation, however, is also precarious. The prospects for peace in the Middle East and Ukraine, given by the start of new talks and conciliatory statements by the United States, are nothing new. Such initiatives have been attempted several times and have failed, with a consequent increase in the cost of crude oil.
Spreads in Spain and France were also good
Consequently, the other large European countries are also benefiting from this situation. In Spain, Bonos have closed the gap on Bunds to 54 basis points, with yields below 3.80%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.25% | – |
| Italian BTPs | 4.27% | 102 |
| French Oats | 4.70% | 145 |
| Spanish bonos | 3.79% | 55 |
In France, however, the spread is at 145 points, rather high compared to the rest of Europe, because Paris’ public debt and the political instability that could follow the 2027 elections remain critical points that influence OAT returns.
Tomorrow the auctions of Italian government bonds begin again
Government bond auctions will resume tomorrow 11 November, with the issuance of 8.5 billion euros in 12-month BOTs. Bots have no coupon and their returns are determined solely by the difference between the purchase price and the nominal price. Subsequent auctions will be held on the following days:
- 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.
