The spread between BTPs and Bunds opens at 72 basis points, a sharp decline compared to 76.5 at last Friday’s close. An important reduction, which sends a strong signal to the markets and which makes Italy increasingly attractive to investors.
Not only that: the yield on the Italian 10-year bond, although rising slightly to 3.44%, remains below that of the French Oat, which is at 3.46%. This means that today Italy finances itself at lower costs than France, marking a clear change of pace in the perception of risk in recent years.
The Spread as a thermometer of risk
To understand the significance of these numbers, it is essential to clarify what the BTP-Bund spread is. In technical terms, it is the difference in yield between the 10-year Italian government bond (BTP) and the German counterpart (Bund), considered the safe haven par excellence in Europe.
If the Bund yields 2.72% and the BTP 3.44%, the spread is 72 basis points (0.72%). This number represents the risk premium that investors demand for lending money to Italy instead of Germany. If the spread is high, then the markets fear that Italy will not be able to repay its debts; if it is low, then there is confidence in the financial stability of our country. If 72 points is already a very low figure, experts hypothesize that it could even go below 70 points, a situation unimaginable until a few years ago.
Why it is better to invest in government bonds
Such a low spread level, combined with current yields, creates an attractive window for savers for at least three reasons:
- a good risk/return ratio, with the investor being able to obtain a very respectable coupon flow with much lower volatility than in the past;
- earnings prospects, thanks to the collection of semi-annual coupons and the resale of the security at a higher price in the future;
- use government bonds as a refuge from equity uncertainty, with government bonds seen as a safe haven from market unpredictability.
The consequences for the real economy
But the impact of a 72 basis point spread goes far beyond stock charts; it is pure oxygen for the real Italian economy.
The first direct consequence is savings on interest. Italy has a very high public debt (a figure equal to over 3,000 billion euros) which must be constantly refinanced by issuing new securities. If the spread falls, the state must offer lower interest to convince investors to buy the debt. This translates into billions of euros saved every year, with resources that the government can use for public investments, healthcare or tax cuts.
Furthermore, there is an international credibility factor. The fact that the yield is lower than the French one indicates that the markets today see Rome as politically more stable than Paris. Not only that, but today the Italian economy is even more dynamic than Germany, which, after experiencing a period of standstill, is returning to growth as before.
This climate of trust favors the State but also Italian banks and businesses, which can finance themselves on the markets at lower costs, thus supporting the country’s growth.
