When the financial markets opened on May 19th, the spread between Italian BTPs and German Bunds was reported to have fallen to 76 basis points, four less than what was recorded 24 hours earlier. A change due to the reduction in yields, which moved away from 4%, falling to 3.91% for 10-year benchmark BTPs.
Yesterday, the differential had reached some of the highest levels in recent weeks, due to growing tensions between the US and Iran over the ceasefire. However, the announcement of new mediation by the Gulf countries by US President Donald Trump has reassured investors.
Spread between BTP and Bund decreasing after the peak
The reduction in the spread is mainly due to the rapid decline in the yields of Italian BTPs, which went from 3.98% at the opening on Monday to 3.91% today, Tuesday 19 May. However, these are very high interests for investors compared to the performance of Italian government bonds in the recent past, but the reduction trend signals greater confidence among entrepreneurs in the country’s public debt.
At the same time, German Bunds did not keep up the same pace, falling by only three hundredths of a point and reaching 3.15%. The sudden reduction in the spread is mainly due to the new implications of the war in Iran. The new negotiations led by the Persian Gulf countries and Iran’s openness to nuclear power could lead to an end to the war in the near future, and therefore an improvement in the Italian economic situation.
The other European spreads also fell
The effect of progress on the diplomatic front of the war in Iran was also felt in the rest of Europe. All government bonds of the major European countries saw a reduction in yields at the opening, which however did not entirely compensate for the growth accumulated during the weekend.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.15% | – |
| Italian BTPs | 3.91% | 76 |
| French Oats | 3.78% | 63 |
| Spanish bonos | 3.58% | 42 |
Spanish Bonos reduced their spread from Bunds to 42 points, with a yield of 3.58%. The French Oat instead rose to 3.78%, with a spread of 63 points. Both therefore confirm themselves to be much less volatile than BTPs, maintaining a gap of maximum three points compared to the most recent results.
The next BTP and BOT auctions
Starting next week, the end-of-May auctions of BTPs and BOTs will be held, the last opportunity for this month to invest in Italian public debt. If yields were to remain this high it would be an important opportunity for investors.
The exact dates of the next auctions of Italian government bonds are:
- 26 May, Short Term BTP auction;
- May 27, Bot auction;
- May 28, auction of medium-long term BTPs.
