The spread between Italian BTPs and German Bunds remained stable at 75 basis points, opening on May 11th as it opened on the last day of last week. Bond markets are proving to be less influenced than expected by the ongoing developments in negotiations on the war in the Middle East, which stalled again late yesterday evening, with Trump rejecting the Iranian proposal for an agreement.
The traditional auctions of BOTs and BTPs will also begin again this week, at a time when yields have dropped compared to even just the beginning of the month. The 4% threshold remains far away, which is good news for the Government which is working to bring the deficit below 3% of GDP.
Stable spread between BTPs and Bunds
No significant change in the spread between Italian BTPs and German Bunds at the opening of May 11th. The differential remained at 75 basis points, with yields very similar to those that had formed at the start of Friday, the last day of last week. The Italian coupons of the 10-year benchmark bonds stood at 3.77%, while the Bunds maintained yields of just over 3%.
A stability that paradoxically shows a change in the behavior of the bond markets towards the war in the Middle East, the main event that has influenced spreads and returns in recent months. In fact, yesterday evening, Sunday 10 May, Iran responded to the proposed agreement put forward by the United States this week.
President Donald Trump, however, following a call with Israeli Prime Minister Netanyahu, immediately defined this proposal as “unacceptable”. The negotiation that seemed to have come very close to an agreement then suddenly stalled. This, however, has not particularly moved the yields of government bonds, which seem to have become accustomed to the unstable nature of this negotiation.
Europe stuck at Friday’s yields
This trend can also be seen in the behavior of other government bonds of large European countries. Both Spain and France kept the yields of the 10-year Bonos and Oat respectively stable even though hopes for short-term peace in the Middle East were dashed.
| Government bonds | Returns | Spreads |
|---|---|---|
| German Bunds | 3.02% | – |
| Italian BTPs | 3.77% | 75 |
| French Oats | 3.64% | 62 |
| Spanish bonos | 3.44% | 42 |
Despite governments’ concern, especially over fuel prices, for the moment in Europe the crisis has not yet forced drastic measures to reduce consumption, which would be those with the greatest impact on growth. The prolongation of the war, however, continues to frighten the main economies of the continent.
The next BTP and BOT auctions
The lack of reactivity of the bond markets to the changes in the war in the Middle East is actually good news for the State, which is preparing for the first BTP and BOT auctions in May. Issuance will begin this week, with yields not much higher than those at the beginning of the year. Help for the Government, which is trying to get out of the infringement procedure for excessive deficit by the end of this legislature.
The dates to note for the auctions of Italian government bonds are:
- May 12th, Bot auction;
- 13 May, auction of medium-long term BTPs;
- 26 May, Short Term BTP auction;
- May 27, Bot auction;
- May 28, auction of medium-long term BTPs.
