The spread between Italian BTPs and German Bunds increased again at the opening of August 6th. The spread grew to 78 basis points after three consecutive days of decline which had brought it back to the levels of mid-July. Yields also increased.
Various factors stopped the decline in the differential. In the Middle East, Iran has reached an agreement with Oman on the Strait of Hormuz, but continues to reiterate that it does not want to negotiate with the USA. Italy has also announced a budget gap of 1.5% of GDP over two years, which although falling within the European safeguard clauses, is still additional debt that weighs down government bonds.
The spread starts to grow again together with the yields
Yesterday, some international and national events changed the trajectory of government bonds and their yields on the bond markets. Iran has announced that it has reached an agreement with Oman, the other state bordering the Strait of Hormuz, on naval traffic in the sea area. However, the Tehran authorities stressed that the United States had not been consulted. It is unclear whether President Trump will accept a deal in which Washington is not involved, and this worries the markets.
Yesterday, the Minister of Economy and Finance Giancarlo Giorgetti also communicated to the Chamber that Italy will request the activation of the safeguard clauses from the EU, to implement a budget deviation equal to 1.5% of GDP in two years, for energy and defense expenditure.
The effect on spreads and returns
The result of the combination of uncertainty and new debt expected for the next few years has stopped the decline in the spread, bringing the differential back to 78 basis points. The yields reached 3.90%, against 3.12% of those of German Bunds. A significant increase, after yesterday the interest on 10-year benchmark BTPs stood at 3.8%.
European spreads are affected by the international situation
The Italian decision to request the safeguard clauses did not, apparently, have too much influence on the trend of spreads and yields, given that the other main European countries also followed trajectories similar to the Italian one at the start with regards to their government bonds.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.12% | – |
| Italian BTPs | 3.90% | 78 |
| French Oats | 3.92% | 80 |
| Spanish bonos | 3.56% | 44 |
In Spain, the Bonos saw the spread with the Bunds increase by one point and reached 44 basis points, with a yield of 3.56%. The French Oats, on the other hand, reached a yield of 3.92%, with a spread of exactly 80 points.
The next auctions of Italian government bonds
The Treasury will return to issuing government bonds starting next week, with the auction of BOTs and that of medium and long-term financial products.
The dates to remember are:
- August 12, Bot auction;
- 13 August, auction of medium and long-term bonds;
- 26 August, auction of Short Term BTPs and BTP€i;
- August 27, Bot auction;
- August 28, auction of medium and long-term bonds.
