BTp: auction yields soar to a three-year high

Rising oil prices, rising inflation and expectations of further interest rate rises by the ECB are also having an impact on the auctions in which the Treasury has placed BTPs. Yields at the auction of 5- and 10-year government bonds have, in fact, risen to their highest levels in the last three years, mirroring the upward trend already seen in the secondary markets.

Bonds totalling 8 billion were placed. Specifically, the first tranche of the new 5-year benchmark BTp maturing on 1 February 2032 was allocated for 3.5 billion, with a yield up by as much as 63 basis points compared with the previous auction to 4.0 per cent – a record high since October 2023. Demand stood at 5.389 billion, resulting in a bid-to-cover ratio of 1.54. The third tranche of the 10-year BTp maturing on 1 October 2036 was then allocated for 3 billion, with the yield rising by 49 basis points to 4.58 per cent – also a high not seen since October 2023. Demand totalled 4.678 billion, with a coverage ratio of 1.56. Finally, the ninth tranche of the CcTeu maturing on 15/04/2036 was placed for 1.5 billion, with a yield of 3.38 per cent. Demand stood at 2.617 billion, with a coverage ratio of 1.75.

Today’s figures come against a backdrop of rising bond yields, which are hitting new multi-decade highs for long-term maturities: the US 10-year yield has been at 5.24 per cent since 2007, and the German Bund yield at 3.65 per cent since 2009. The BTP-Bund spread remains stable at around 95 basis points. This rise in yields, as mentioned, is linked to a number of factors. The first is the rise in oil prices, which has driven up fuel costs. Prices for energy, copper and wheat are also rising. All of this is leading to continued rises in inflation, both in Europe and in America. Just this morning, Spain’s September inflation figures were released, showing a rise to 4.9 per cent.

This is fuelling expectations of interest rate rises by central banks, starting with the ECB. The upshot is that government bond yields on the market are rising precisely because of these expectations. Global concerns about public finances are also weighing heavily, as is – particularly in the US – the competition posed by the massive bond issues by big tech firms to finance investments in AI. Consequently, government bond yields are rising, and with them the cost of public debt. Today’s auctions are merely the latest – yet another – snapshot of this global phenomenon.