The spread between Italian BTPs and German Bunds reached 94 basis points at the opening on September 28th. A slight decline from last week’s highs, but an increase from Friday’s open. However, yields grew significantly, reaching 4.55%.
This is one of the highest figures ever reached by BTP yields in the last 12 years. Only on two occasions in this period, in 2023 and 2013, had Italian stocks reached a higher share. It is also a problem for the Government which must develop the Budget. Debt has suddenly become very expensive for the Italian state.
The spread remains high and yields are close to new records
The week therefore opens by confirming the strange dualism between spreads and yields that has characterized Italian and European government bonds since the beginning of the crisis in the Middle East. The differential is relatively low. Even if 94 points are many more than the 60 or so lows at the beginning of the year, on a historical level they remain well below any alarm level or any record, even recent ones.
On the contrary, yields are at their highest in years. If you remove some peaks of a few days in 2023, BTPs have not seen yields of 4.55% since 2013, with Italy still emerging from the financial crisis.
Government bond yields and the Budget
Such high yields could have a direct impact on Italy’s economic policy. The Government is preparing to draw up the Financial Maneuver, which will determine how much the State will spend in 2027. A good part of the discussion on this budget law will revolve around how much new debt to raise.
Minister Salvini has already asked for a budget deviation. The same safeguard clauses, if they were granted even without the deficit below 3%, are still new debt, even if not counted in the European constraints. With yields at record levels, borrowing money risks being extremely expensive for the state.
All European stocks are suffering
The reason spreads remain low but yields are at record levels is that all European government bonds are under pressure. German Bunds yield 3.61%, Spanish Bonos 4.10%, French Oats, the most in difficulty, 4.72%.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.61% | – |
| Italian BTPs | 4.55% | 94 |
| French Oats | 4.72% | 111 |
| Spanish bonos | 4.10% | 49 |
It all depends on the energy crisis. Markets are worried that ever-higher oil and fuel prices will slow down European economies, although this has not yet happened. At the same time, US Treasury bonds are at their highest levels in years and European bonds must, somehow, compete.
How are the September auctions going?
In this context, the last September government bond auctions are taking place. On Friday the 25th the BOTs recorded returns close to 3%, after the Short Term BTPs had reached 3.64% the previous day. Tomorrow, 29 September, there will be the issuance of two medium and long-term BTPs and one CctEu:
- a 5-year BTP with a 3.95% coupon;
- a 10-year BTP with a 4% coupon;
- a 10-year CctEu with an annualized rate of 3.237%.
