(Finance) – The spread has grown sharply also todaywith the weekend failing to bring calm to the government bond markets following the decisions of the European Central Bank (ECB) last Thursday. The Italian bond is losing a lot of ground and doing worse than its counterpartieswith the differential between BTPs and Bunds reaching levels not seen since the beginning of May 2020. The spread between Spanish and Portuguese government bonds is also widening, returning to the highs of April-May 2020.
The yield on the Italian 10-year BTP closed the day up by 26 basis points a 4.01% from 3.84% of the previous closing. The difference between the yield of the Italian ten-year BTP and the German ten-year Bund ended the session at odds 236 basis points from 224 of the previous closing. During the session, the spread rose to a maximum of 241 basis points. The Spanish ten-year is at 2.98% (+22 basis points today), the Portuguese one at 2.98% (+21 bps), the German one at 1.63% (+11 bps) and the Greek one at 4.48% (+12 bps).
Last week, Frankfurt decided on a double hike in interest rates, scheduled to expire in July and September (when a 50bp hike is not ruled out), while has not announced new tools to contain spreads interest rates between government bonds. Today Peter Kazimira member of the ECB’s governing council and governor of the Slovakian central bank, said the pace of interest rate increases must be accelerated to 50 basis points in September.
Numerous comments on the widening of the spread followed one another today. There EU Commission, without commenting on market trends, today highlighted the need for Italy to focus on reforms. The expectation is that the reforms and investments made in the PNRR “significantly increase the resilience of the Italian economy, its sustainability and its comparability” with other economies.
Francesco GiavazziPrime Minister Mario Draghi’s closest economic advisor, said Frankfurt’s rate hikes they are not the right tool to reduce inflation and will have the effect of slowing the economy.
However, analysts do not seem overly concerned by the “case of Italy”. “As far as Southern European government bonds are concerned, some volatility can be expected, but if spread widening continues there would probably be an intervention by the ECB“, said Matteo Ramenghi, Chief Investment Officer UBS WM Italy.” The spreads are widening not because Italy has a financing problem but because the market wants to see how serious the ECB is about keeping them in check, ”commented Andrew Mulliner, Janus Henderson’s Head of Global Aggregate Strategies.