On the morning of May 27, the spread between BTPs and Bunds continued to remain stable at the levels at which it had started the week. The spread remained at 73 basis points, with yields falling slightly for both Italian and German government bonds.
However, a result that is also surprising given the economic and geopolitical circumstances. Yesterday several ECB executives made it clear that Frankfurt will be forced to increase interest rates in June. In the meantime, Israel’s ground offensive in Lebanon has resumed, another factor of instability in the Middle East after yesterday’s US bombings in Iran.
Stable spread despite pressure
May 27th was an unexpectedly stable opening for the spread between Italian BTPs and German Bunds and for the yields of the two government bonds. Compared to the previous day, the changes were minimal, with the differential rising slightly to 73 basis points. Interest on Italian bonds remained at 3.69% while those on Bunds fell to 2.96%.
The calm on the bond markets clashes with the words of two high-profile executives of the ECB, Isabel Schnabel and Philip Lane, both members of the Executive Committee that decides the Eurozone’s monetary policy. The two economists have made it clear that they will push for a rapid increase in interest rates, even in the event of a peace agreement between the US and Iran, due to the repercussions of the war in the Middle East on inflation.
And news continues to arrive from the Middle East that does not give hope for a solution to the conflict in the short term. After the US bombing of some Iranian missile sites, effectively the first act of war since the beginning of the ceasefire between the two countries, yesterday Israel resumed its ground offensive in Lebanon against Hezbollah, an ally of Tehran.
A month of calm for Europe
If the Italian spread has had moments of instability in the last month, the same cannot be said for France and Spain, the other two large European countries that compete with Germany on the bond markets. May was a quiet period for both, with a spread that was always stable at the same levels.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 2.96% | – |
| Italian BTPs | 3.69% | 73 |
| French Oats | 3.57% | 61 |
| Spanish bonos | 3.38% | 42 |
The opening on May 27th also confirmed this trend. The Spanish Bonos remained 42 basis points away, with a yield of 3.38%, while the French Oat reduced the spread to 61 points, with average interest of 3.57%.
2.5 billion euros from the auctions of Short Term BTPs
The auction of Short Term BTPs ended yesterday. The results were excellent, with a demand of over 4 billion euros against an offer of no more than 2.5 billion, which resulted in a coverage rate of 1.67. The BOT auction will be held today, while tomorrow three different medium and long-term BTPs will be issued.
| Government bonds | ISIN code | Expiration | Annual coupon | Maximum amount offered |
|---|---|---|---|---|
| 5 year BTP | IT0005707614 | 01/06/2031 | 3.15% | 3.5 billion euros |
| 10 year BTP | IT0005706285 | 01/07/2036 | 3.80% | 2.5 billion euros |
| BTP at 20 years | IT0005177909 | 01/09/2036 | 2.25% | 1.25 billion euros |
In June, in addition to the traditional auctions, an issue of a new government bond dedicated to retail investors, the Btp Italia Sì, will also be held.
