The spread between Italian BTPs and German Bunds fell to 79 basis points, falling below the psychological threshold of 80 points for the first time in weeks. The differential reduced thanks to a downward variation in the yields of Italian benchmark ten-year government bonds and substantial stability in German ones.
The drop in oil prices linked to the reduction of military operations in the Middle East has helped, but low inflation and some positive economic signals from businesses also contribute to the Italian data.
The spread is under 80 points after two weeks
The spread between Italian BTPs and German Bunds had not fallen below 80 points since July 16th. The end of the ceasefire in the Middle East had scared investors, who had moved away from Italian debt, causing yields to rise above 4%. Even if incomes have not yet returned to normal, confidence in the Italian economy seems to be increasing.
Spreads falling, but yields still high
The spread reached 79 basis points on the morning of August 4, a decline caused by a reduction in yields to 3.93%, compared to 3.14% on 10-year German Bunds. Although the spread is decreasing, therefore, government bond yields remain relatively high, although a tenth lower than the highest readings in recent weeks.
Because the spread is decreasing
The reduction in the spread is mainly linked to the war in the Middle East. The situation is at a standstill, but is still less chaotic than the last two weeks, with fewer attacks in the straits and less bombing of Iranian energy infrastructure. The result is a drop in oil prices and greater investor optimism about the Italian economy.
However, data on the health of our country’s economy have also helped. Inflation in June was estimated to be falling for the second month in a row, bucking the trend in the rest of Europe. The turnover of manufacturing companies is growing by 2.3% and the PMI index for July remained in expansion territory.
The other European spreads also fell
The effects of the cooling of the conflict in the Middle East are also being felt in the rest of Europe. In Spain the Bonos reached yields of 3.58%, with a spread of 44 basis points.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.14% | – |
| Italian BTPs | 3.93% | 79 |
| French Oats | 3.94% | 80 |
| Spanish bonos | 3.58% | 44 |
In France, OATs returned to levels similar to Italian BTPs. They brought the spread back to 80 points, with yields of 3.94%.
The next auctions of government bonds
The Treasury just completed its final auctions for July. We will therefore have to wait until the second week of August for new government bonds to be placed on the market. The dates to note 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.
