The spread between Italian BTPs and German Bunds has returned to 84 basis points after yesterday’s brief retreat. However, this is a phase of relative stability for the differential, which has stopped recording new peaks for three days. The situation on the bond markets, however, is not improving.
This is demonstrated by the yields on Italian government bonds, which increased further on the morning of July 22nd, exceeding 4%. Those of German securities are not doing any better, increasing in parallel, leading to the relative stability of the differential.
Stable spread but significantly increasing yields
After falling to 83 basis points in the early hours of yesterday morning, the spread between Italian BTPs and German Bunds rose again to 84, one of the highest levels in recent months. However, it is a sign of stability for the spread, at a time when yields are growing almost uncontrollably.
In fact, interest on government bonds is increasing at a pace not seen since the initial stages of the war in Iran. BTPs reached 4.03%, moving beyond the 4% threshold for the first time in a stable manner. This is a record for 2026, even higher than March levels.
The Bunds are also demonstrating unprecedented instability. German securities touched 3.20% at the opening, demonstrating that they are no longer considered a safe haven in times of international instability.
Why government bond yields are so high
The reason why European government bond yields are at the levels of the most critical phases of the war in Iran is that the conflict in the Middle East is degenerating, with levels of violence and risks of escalation exceeding those of March.
Yesterday, in rapid succession, first Axios reported that US President Donald Trump was considering a land invasion of Iran and then Trump himself declared that he was ready to intervene against the Houthis too, if they were to implement a naval blockade on the Red Sea to the detriment of Saudi Arabia.
European spreads are holding up
Even in the rest of Europe the trend seems to remain the same as that shown by Italian stocks. In Spain the spread stabilized at 46 basis points, but with high yields for the average of Madrid bonds, at 3.65%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.19% | – |
| Italian BTPs | 4.03% | 84 |
| French Oats | 3.99% | 80 |
| Spanish Bonos | 3.65% | 46 |
Similarly, French Oats, after some very critical days between last week and Monday, returned to 80 basis points from Bunds, with yields just under 4%.
The BTP auctions are approaching
The last July auctions of BTPs and BOTs will be held next week. Between tomorrow 23 July and Friday 24 the Treasury will release the details of the Short Term BTP and BOT auctions. The release days will be:
- 28 July auction of Short Term BTPs and BTP€i;
- July 29th Bot auction;
- July 30 auction of medium and long-term bonds.
