Second consecutive day of sharp decline in the spread between Italian BTPs and German Bunds. At the opening of October 27th the differential follows yesterday’s excellent day, reaching 115 basis points. Yields on Italian government bonds settled at 4.50%, almost two tenths away from last week’s peaks.
The auction of Short Term BTPs and BTP€i will also be held today, with three different products that will be issued by the Treasury in the next few days.
The spread is continuing to decline along with yields
Compared to yesterday’s opening, the spread between Italian BTPs and German Bunds fell by another 7 basis points. Yields fell nearly 20 hundredths of a percentage point from last week’s peaks, returning to 4.50%. These are the consequences of the reduction in market pressure on debt securities.
Because yields and spreads are falling
Why spreads and yields are narrowing so rapidly is counter-intuitive. The causes of the recent increase in these parameters are still there: the price of oil is high, inflation continues to be a serious concern, the Fed and the ECB seem intent on increasing interest rates.
However, speculation surrounding these circumstances has reduced. Moody’s initiated the reduction in pressure yesterday when it confirmed the Aa3 rating for French government bonds. Oats were particularly subject to speculation, for reasons linked to France’s economic and political difficulties, but which did not justify the highest returns in the history of French securities since the introduction of the euro.
The rating agency’s decision reassured the markets and weakened speculation which, for the moment, has given up on attacking France. This does not mean, however, that in the near future there cannot be another offensive, especially with the 2027 elections promising a clash between two candidates not particularly appreciated by the markets: Marine Le Pen, of the far right, and Jean-Luc Mélenchon, of the far left.
The situation of European government bonds is improving
The effects of this easing of speculation are being seen across Europe. In Spain the Bonos returned to a 4% yield, with a spread of 65 basis points.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.35% | – |
| Italian BTPs | 4.50% | 115 |
| French Oats | 4.93% | 158 |
| Spanish bonos | 4.00% | 65 |
The French Oat, negative protagonists of the last few weeks, have moved further away from the 5% yield, a record of the last 25 years, returning to 4.93%.
Today the auction of Short Term Btp and Btp€i
Today the auction of Short Term BTPs and BTP€i will be held. The securities that will be issued are:
- a 2-year Short Term BTP with an annual coupon of 3%;
- a 15-year Btp€ia with an annual coupon of 1.25%;
- a 30-year Btp€ia with an annual coupon of 2.35%.
The next auctions, however, will be held:
- Wednesday 28 October, the Bots auction;
- Thursday 29 October, the auction of medium and long-term bonds.
