After an encouraging close yesterday, Italian government bonds came back under pressure in the first minutes of the opening on September 22nd. The spread between 10-year BTPs and Bunds is stable at 89 basis points while yields, which had fallen in the final hours of Monday, have returned to the levels of recent weeks, at 4.38%.
This instability was dictated by the price of oil. Yesterday, crude oil fell rapidly, losing 4.5% of its price on international markets, with Brent below 100 dollars a barrel. However, a night of attacks in Yemen has brought volatility back to the markets.
Unstable spreads and returns, what’s happening
In the last hours of the opening of the financial markets yesterday Monday 21 September, it seemed that the peak in the spread and yields of Italian government bonds which has lasted for months, due to fears about the energy crisis, was being resolved. A sudden drop in yields and a reduction in the spread had given hope for a normalization of coupons. Things, however, changed overnight.
Oil drags the spread
It was the oil market that caused these movements. On September 21, the price of crude oil collapsed on hopes that the conflict in the Middle East would calm down. Both WTI and Brent had fallen below 100 dollars a barrel, with sudden price collapses. Overnight, however, the situation in Yemen degenerated again, with clashes between the Houthis and Saudi Arabia raising fears of escalation.
The result is that, since the early hours of the morning, oil has started to grow again, with Brent in particular immediately rebounding above 100 dollars a barrel. Fears of strong inflation in Europe have therefore rekindled, which would undermine the economic growth of the most exposed countries, such as Italy.
Increasing spread and yields
The result was a rebound in the spread to 89 basis points, after the spread had fallen to 87 at the close on Monday. However, what changed more rapidly were the average yields, which had dropped below 4.32%, which had not happened for two weeks. In the morning, however, they immediately rose to 4.38%.
European spreads are affected by instability
The situation is essentially identical also in the other large European countries. Spain took advantage of the volatility to shave a point of spread, reaching 46 basis points.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.49% | – |
| Italian BTPs | 4.37% | 89 |
| French Oats | 4.50% | 102 |
| Spanish bonos | 3.94% | 46 |
Similarly, French OATs have moved closer to Bunds, but their spread remains the highest, at 102 basis points.
The next issues between auctions and Green BTPs
Government bond auctions will resume this week and will be held:
- on 24 September, with the auction of Btp Short and Btp€i;
- September 25th, with the Bots auction;
- on September 29, with the auction of medium and long-term bonds.
In addition to these investment opportunities, a new syndicated issue of Green BTPs should also take place soon.
