The spread between Italian BTPs and German Bunds remained stable at the opening of the financial markets on 8 September. 82 basis points is the level at which the spread has stabilized, after last week’s rise, fomented by international tensions and the Fed’s indecision. However, uncertainty in Germany has caused BTPs to recover, with the victory in the elections in Saxony-Anhalt for the far-right AfD.
However, the yields on Italian government bonds remain among the highest in recent history, at the dawn of a new round of auctions that will begin tomorrow with that of the BOTs.
The spread remains stable but yields grow
Despite the stability of the spread, the yields of 10-year benchmark BTPs increased again. Now the average yield is at 4.20%, very close to recent records and in any case the highest in three years. The reasons are various, but what is currently pushing both Italian stocks and Bunds higher is the fear of the “contagion” that the victory of the far-right AfD party in the federal state of Saxony-Anhalt could cause in the EU.
The Merz government is shaking: the effects on the Bund
Political stability has always been a factor that influences government bond yields. Germany, which for decades has stood for solid government, is facing a turbulent time. The recent victory of the far right comes above all from the collapse of the CDU, Chancellor Merz’s party.
The head of the German government has made it clear that he will not resign and will continue his work, despite his popularity being at its lowest. However, even just the doubt of a change of government has agitated the markets.
The fear of contagion shakes Europe
Spanish Bonos also followed the Bund’s trajectory as closely as BTPs. Madrid bond yields increased by 2 tenths of a point, while the spread remained stable.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.38% | – |
| Italian BTPs | 4.20% | 82 |
| French Oats | 4.25% | 87 |
| Spanish bonos | 3.82% | 44 |
The French Oat, however, confirmed themselves to be more vulnerable. Paris bonds showed a growth of three hundredths of a point in yields, with the spread returning to 87.
Government bond auctions are approaching
Starting tomorrow 9 September, the effects of the increases in yields will also be seen on the new government bonds issued by the Treasury. First it will be the Bots’ turn, while the characteristics of the medium and long term ones have been revealed:
- 3-year BTPs expiring in September 2029 for 3.5 billion euros, with an annual coupon of 3%;
- 7-year BTPs expiring in September 2033, worth 3.5 billion euros, with an annual coupon of 3.35%.
- 50-year BTPs expiring in March 2072, 750 million euros, with an annual coupon of 2.15%.
The dates of the subsequent auctions will be:
- on 24 September for the auction of Btp Short and Btp€i;
- September 25th for the Bot auction;
- on 26 September for the auction of medium and long-term bonds.
