It wasn’t a single day peak on July 8th. Yesterday the spread between Italian BTPs and German Bunds reached 80 points, a figure that has been seen few times in recent months. Today 9 July, at the opening, no descent occurred. Differential stuck at one of the highest levels in the recent past.
Yields also increased again, reaching 3.86% for BTPs and 3.06% for Bunds. Trump’s statements in Ankara did not help, having at the same time reignited the war with Iran, threatened the collapse of the trade agreement with the EU and put the annexation of Greenland back at the center of international discussions.
Spread still stable at 80 points, yields increase
The international situation had an immediate impact on government bond markets. The spread between Italian BTPs and German Bunds remained at 80 basis points for the second consecutive day, one of the highest levels in recent months. It is worrying, also in view of the July auctions, that the level of the spread did not fall after the peak as it had done in similar circumstances in the past.
Yields also increased, although at a pace not comparable to that of the July 8 peak. BTPs now have an average coupon of 3.86%, with Bunds at 3.06%. This could be a symptom of a cooling interest from investors, who perceive a higher risk in Italian and German public debt and therefore ask for a higher return to purchase them.
Instability overwhelms Europe
The Spanish Bonos, after yesterday’s clear countertrend, jumped by 10 points in spread and 12 cents in yields after Trump threatened an embargo against Madrid’s goods due to the Sánchez government’s opposition to his line in the Middle East. The spread with Bunds reached 48 basis points and yields 3.54%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.06% | – |
| Italian BTPs | 3.86% | 80 |
| French Oats | 3.86% | 80 |
| Spanish bonos | 3.54% | 48 |
The situation of the French Oat is also worsening, having reached the Italian titles after months of better performances. Even for Paris bonds the spread is now at 80 basis points and the yields at 3.86%.
Today the BOT auctions, tomorrow the medium and long term BTPs
The State could suffer the consequences of this instability already in today’s BOT auctions. There will be a single 12-month product available for an offering of 8 billion euros. Tomorrow 10 July the auctions of three different medium and long-term BTPs will follow. The annual coupons are between 3% and 4% but the real returns, in a high spread situation, could be higher.
The auctions will then continue at the end of the month. The dates to remember are:
- 28 July auction of Short Term BTPs and BTP€i;
- July 29th Bot auction;
- July 30 auction of medium and long-term bonds.
