The spread between Italian BTPs and German Bunds began to grow again at the opening of May 15th. The 10-year benchmark bonds of the two countries recorded a distance of 77 basis points, due to a higher rise in BTP yields compared to that suffered by their German counterpart.
The yield levels reached at the beginning of the week are therefore moving further and further away, even if the spread remains more or less under control. The May BTP and BOT auctions recorded, in some cases, lower demand than expected, which did not help stabilize the bond markets.
Btp-Bund spread increasing, yields close to weekly highs
New jump in the spread on the last day of a particularly volatile week for the differential between Italian and German government bonds. The 10-year benchmark BTPs have returned to 77 basis points from their German counterpart, rebounding from the 74 points reached yesterday, which would have raised hopes of a progressive rapprochement of Italian bonds to the levels before the war in Iran.
Yields, however, reached levels very close to the weekly highs recorded on Tuesday. The benchmark BTPs present a return of 3.86% on average invested capital, a level exceeded only four other times in the last month. However, Bund yields are also particularly high, a circumstance which tends to reduce the spread.
High yields across Europe
The rebound in yields was also felt in the rest of the European countries. In Spain the Bonos returned above 3.50%, reaching 3.53% at the opening and again distancing themselves by 43 basis points from the Bunds.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.09% | – |
| Italian BTPs | 3.86% | 77 |
| French Oats | 3.74% | 65 |
| Spanish Bonos | 3.52% | 43 |
Oats, French government bonds, also behaved in a similar manner. In this case the yields are closer to the Italian ones, 3.74%, with the spread reaching 65 basis points.
How did the first May auctions go?
The results of the first May auctions of government bonds were good. The issues concluded on May 13th and the Treasury managed to collect the 17.5 billion euros which was the maximum value of the government bonds made available, five in total between BOTs and BTPs. In three cases, however, demand was relatively low, with a supply ratio close to 1.50, a threshold considered by analysts as the border between a positive and negative result, and one product in particular fell to 1.45.
Weak demand ratios push yields and explain, even if only in part, the performance of BTPs in recent days. The May auctions will continue at the end of the month:
- 26 May, Short Term BTP auction;
- May 27, Bot auction;
- May 28, auction of medium-long term BTPs.
