The spread between Italian BTPs and German Bunds increased by a few points on the morning of April 17, reaching 78. A minimal movement despite the situation in the Middle East, on which this peak of the spread depends compared to the levels at the beginning of the year, having changed radically after the markets closed yesterday.
Lebanon and Israel have in fact reached an agreement for a 10-day ceasefire and would have opened negotiations for the end of IDF military operations in the south of the country against Hezbollah. At the same time, US President Trump announced that Iran would agree to hand over the enriched uranium in its possession. Despite this, the markets did not react as in the recent past, a sign of a lack of confidence in a quick resolution to the conflict.
The spread between BTPs and Bunds does not decrease
European bond markets did not react as expected to the agreement between Israel and Lebanon for a 10-day ceasefire in the south of the country. The spread between Italian BTPs and German Bunds rose slightly, reaching 78 basis points compared to 76 at the opening yesterday, 16 April. An at least temporary stabilization of the situation in the Middle East had led, in recent weeks, to sharper declines in the differential.
Yields, however, moved upwards, with those of 10-year benchmark BTPs returning above 3.80%. Bunds are also increasing in yield, to 3.05%, now solidly above the psychological threshold of 3% which had remained unsurpassed for months, even in the event of adverse economic news.
The market reaction is even stranger considering that US President Donald Trump also declared that Iran would be willing to hand over the enriched uranium in its possession, a move that would be a big step forward for the negotiations. However, Trump’s announcements and temporary ceasefires seem to have lost their effectiveness on investors, who now fear a long-term crisis.
Europe awaits the meeting of the “willing”
The behavior of Spanish and French government bonds follows that of the rest of European state financial products. The Bonos reached yields of 3.50%, with a spread of 45 basis points. The French Oats, on the other hand, still yield 3.69%, with a 64 basis point differential.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.05% | – |
| Italian BTPs | 3.82% | 78 |
| French Oats | 3.69% | 69 |
| Spanish bonos | 3.50% | 45 |
There is anticipation on the European markets, especially for the meeting of the so-called European “non-belligerent countries”. In Paris, top EU leaders will meet with British Prime Minister Keir Starmer to develop a strategy to allow European ships to pass through the Strait of Hormuz.
The next auctions in April
Government bond yields therefore continue to rise as the end-of-month auctions approach. The dates announced by the Ministry of Economy are:
- the BTP Short auction on 24 April;
- the Bots auction on April 28th;
- the auction of medium and long-term BTPs will take place on 29 April.
In view of the issuance of two new BTPs, the BTP€i auction scheduled for 24 April has been cancelled.
