The real spread between BTp and Bund? It has already gone below 100 basis points

The BTP-Bund spread is heading towards 'quota 100', indeed virtually already below a psychological level that had not been breached for over three years. The yield differential between the ten-year bonds of Italy and Germany is in fact narrowing considerably in these end-of-year weeks thanks to a series of favourable circumstances that have led to what resembles a 'honeymoon' between the markets and our debt.

With the yield of the German ten-year benchmark at 2.11% and that of the Italian ten-year benchmark at 3.19%, the popular and formerly much feared 'tension barometer' for our country fell to 108 basis points, a value not recorded since the autumn of 2021. In real terms, however, the spread can already be considered to be below 100 points, because the maturities adopted at this time as a measure of comparison for the two countries are slightly different: August 2034 for Bunds and February 2035 for BTp.

The six-month gap in maturity is not entirely insignificant and is indeed worth about 10 cents, which given the positive slope of the curve are in this case to be attributed to Italian government bonds since they are in fact redeemed after German ones. If the maturities were to be realigned, the differential would therefore be around 97-98 points, a circumstance that could automatically occur in the near future (if the situation in the market does not change) when the German bond functioning as a benchmark is replaced.

Beyond relative comparisons, what matters above all for debt sustainability and the effects on the state coffers is the absolute yield on Italian bonds. As luck would have it, it too is falling steadily and is far from the 4% level at which it stood last summer. The merit in this case is to be shared between the general trend in rates, falling everywhere in Europe and also in the United States compared to the highs of 2024, and the more constructive attitude of the markets towards Italy. Evidence of the latter is also provided by the favourable decisions recently taken by the Fitch and Dbrs agencies, which both upgraded their sovereign rating outlooks to 'positive' from 'stable'.

The growing appetite shown on the whole by investors for risky assets in recent weeks, combined probably with the fact that between now and the end of the year the Treasury's task will be eased by the presumable cancellation of the medium/long-term auctions at the end of December, have undoubtedly contributed to favouring the latest snapshot. As a result of the contraction in rates, the cost at issuance of national government bonds has also gone down again, settling at 3.44% since the beginning of the year, compared to 3.75% for the whole of 2023: a few tenths less, and perhaps a smaller reduction than could have been hoped for at the beginning of the year, but still a good omen for a task that will become demanding again in January.