In the early hours of June 30, the spread between Italian BTPs and German Bunds collapsed below 70 basis points, a threshold it had not fallen below since the start of the war in Iran. Yields on Italian government bonds suddenly decreased, while those on Bunds increased, favoring this rapprochement.
The trend in interest on Bunds also had a similar effect on the spreads of other European countries, which decreased, although not as much as the Italian one.
Spreads suddenly falling, what’s happening
There was a rather sudden drop in the spread between Italian benchmark 10-year BTPs and their German equivalents. The differential lost 6 points in one day, going from 75 yesterday, June 29, to 69 today. This is a significant figure, because since March 4th, when the war in Iran had just begun, the spread had not fallen below 70 basis points.
Two different factors combined to generate this decline. On the one hand, a significant drop in the yields on Italian government bonds in a short period of time, which went from 3.61% on 29 June to 3.58%. At the same time, however, there was an increase in Bund yields, which went from 2.86 to 2.89%. The loss of three hundredths of a yield point on the Italian side and an equally important gain on the German side generated the reduction of six basis points in the spread.
European spreads are also falling
The rest of Europe also took advantage of the weakness of the Bunds to reduce the spread. The Spanish Bonos have suddenly caught up with the deficit accumulated in recent weeks, returning 44 points behind. Thanks to the reduction in yields, which dropped to 3.33%, but also the increase in Bund yields which also favored the Italian differential.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 2.89% | – |
| Italian BTPs | 3.58% | 69 |
| French Oats | 3.52% | 63 |
| Spanish bonos | 3.33% | 44 |
Collapse also for the French spread. The Oat achieved a yield of 3.52%, reaching 63 basis points, again a threshold not seen since the beginning of March.
Upcoming government bond auctions in July
After the end of the June auctions, which raised almost 20 billion euros, the Treasury will start issuing government bonds again during the second week of July. The auction dates will be:
- July 9th Bot auction;
- 10 July auction of medium and long-term bonds;
- 28 July auction of Short Term BTPs and BTP€i;
- July 29th Bot auction;
- July 30 auction of medium and long-term bonds.
