Btp-Bund spread rising, tensions on European bond markets

Today during the day the spread between BTPs and Bunds reached 126 points, updating the highest levels since April 2025. Subsequently, the spread with German Bunds fell to 118 basis points with the yield at 4.66%, before rising first to 125 points, then to 128 points and then again to 131 basis points, again at April 2025 levels. The yield on the Italian ten-year bond rose to 4.7%. At the end of the day, the tension on government bond yields decreased, with the spread between BTPs and German Bunds falling to 114.6 points and the Italian yield losing 8.6 to 4.6%.

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European stock markets were positive at the end together with US stock markets, favored by the lower-than-estimated data on new American jobs. An apparently negative circumstance, which however will lead the Fed to be more accommodating on rates. In the last session of the week, Paris gained 0.79% to 7,897 points and London 0.32% to 10,461 points. Frankfurt does well (+1.24% to 25,231 points), Madrid holds (+0.4% to 19,081 points). Positive closing also for Piazza Affari, with the Ftse Mib index gaining 0.49% to 50,483 points.

For further information on Insider: US public debt, what are the possible scenarios?

The BTP-Bund spread is the difference between the yields of the bonds of two different countries, in this case Italy and Germany. If one yields 1% and the other 3%, the spread is 2% and - in technical jargon - the spread is said to be 200 basis points. The spread measures the difference in reliability of the states, and if it increases it means that trust in that country is decreasing. Consequently, investors will tend to sell that state's bonds, and the more they sell, the more the spread will continue to rise.

In recent days, it has been oil that has weighed on the bond market above all, with Brent having once again reached above the threshold of 100 dollars a barrel and then extended above 101, marking an increase of more than 3%. Then there is the nervousness about the explosion of public debts, starting with that of the United States, which requires countries to issue bonds to refinance them with yields, inevitably, destined to rise. Finally, fears about inflation due to the increase in energy prices caused by the crisis in the Middle East (with the lack of signs of a solution) are pushing investors to position themselves by already taking new interventions by the Fed and the ECB on rates for granted. And central banks must keep cost pressures at bay by raising rates and pushing yields further. Thus the yields of government bonds are rising, and in Europe the most indebted countries such as Italy and France are paying the price.

On Thursday, before the budget law was presented to the Council of Ministers, the rate on French ten-year bonds reached the highest level since 2002: a sign of growing investor distrust towards transalpine debt. The yield on bonds on the secondary market jumped to 4.92%, a record high in Paris since July 2002, when the rate topped 5%. Furthermore, the spread between German and French yields reached 131 percentage points: the highest level since 2012. Finally, according to data released by Insee (the French National Institute of Statistics), French public debt has reached 3,595 billion euros, equal to 119% of GDP. Investors' fear is therefore that France will have difficulty in restoring its public finances, and this is why the yield on the 10-year French Oat has approached 5%.

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