(Finance) – “The spread has increased for many countriesalmost all, not all, but the Italian increase is lower than that of many other countries “. This was stated by the Italian prime minister, Mario Draghi, during the press conference that followed the council of ministers, stating that he was expecting a question on the difference between the yield of the Italian ten-year BTP and the German ten-year Bund, and therefore had gone to check the markets just before appearing in front of journalists. “This absolutely must not hide that we start from a much higher spread base and a higher debt volume“he added, with Finance Minister Daniele Franco saying the debt ratio will decline” significantly “this year, after a larger-than-expected decline in 2021.
The yields on Italian bonds are increased sharply in the last week after the European Central Bank (ECB) signaled growing fears about inflation and a potential acceleration in withdrawing the monetary stimulus deployed during the pandemic. From 1.44% on Thursday 3 February, before the announcement of the ECB and the press conference of its president Christine Lagarde, it recorded an increase of 50 basis points. The Italian ten-year BTP in fact closed the day up by 5 basis points with a yield at 1.948% from 1.898% of the previous close. The difference between the yield of the Italian ten-year BTP and the German ten-year Bund ended the session at quota 162.1 basis points from 156.8 at the previous closing. During the session, the spread fluctuated between a minimum of 154.7 and a maximum of 164.6.
“The biggest problem for the ECB is what will happen to spreads when the central bank turns in a hawkish direction,” said Mark Dowding, CIO of BlueBay. they seem happy to assume that the stability of the single currency can be taken for granted these days, in the same way that price stability was taken for granted just a few months ago. “It seems Lagarde is unaware that she has given the market the green light to push spreads to widen,” he added.
“The sentiment of analysts has sided in favor of a rate hike as early as 2022, this is the result of the interpretation of the words of President Lagarde during the usual press conference following the meeting of the ECB board”, commented the specialists of MTS, the Euronext-Borsa Italiana platform for the exchange of government bonds. “However the MTS platform in addition to registering a interesting level of volumes in all sessions, notes that the interest of the operators has been more concentrated on purchases rather than sales – reads the weekly report of MTS – Monday the BOT 13/01/23 12M with average yield -0.284% has touched 1 billion euros in volumes , the yield of the ten-year BTP rises up to 1.8%. On Tuesday, the 5-year Credit Default Swaps on Government bonds were worth 103.9 basis points with an underlying probability of default of 1.7%. The mid-long part of the curve was still heavily traded on Wednesday, BTPS 0.90 01/08/22 reached 1.3 billion volumes. On Thursday, US inflation figures were the focus of the day, + 7.5% year-on-year against an estimate of + 7.3% and a last figure which marked + 7%; and the differential between the BTP with a yield just under 1.9% and the German counterpart reached 160 basis points “.
Words of reassurance, as well as from Draghi and Franco, also came from the head of the Ministry of Economy and Finance for debt management Davide Iacovoni, which stated that it does not see particular sales flows of investors leaving Italy. “There is certainly a significant rate hike these days, but we have not seen any particular sales flows“, said the Treasury executive at the Assiom Forex annual meeting. The MEF, confirmed Iacovoni, will have to refinance this year just under 230 billion medium-long term bonds and foresees an additional net borrowing requirement of 80-90 billion, to a total financial provision of about 320 billion covered with about 300 billion of Treasury issues and just over 20 billion (about 7%) by Next Generation Eu (NGEU) funds. The debt manager has estimated that an upward shock 100 basis points on the entire yield curve would yield a increase in expenditure for the Treasury in the first year of 2 billion euros.