A year of great stardom for BTP is about to end. A fact that is crystallized in one piece of data: the yield differential between the Italian ten-year government bond and the German ten-year bond, which has fallen to a 16-year low of 65 basis points. Suffice it to say that at the end of 2022, on the eve of the inauguration of the government led by Giorgia Meloni, the spread was around 240 points. A withdrawal resulting from the strong demand for Italian government bonds, seen as a stronghold of stability in a politically fragile Europe. The various auctions announced by the Ministry of Economy – 380 billion BTPs and 170 billion Bot were placed in 2025 – went very well. To give two examples, the one on 11 December put 3, 4 and 5 year bonds on the table for 5 billion, which received requests for over 8 billion. While on 27 and 28 November ten-year bonds for 2.75 billion were placed with a demand of 4.3 billion. A sign of a convinced request, even more so after the promotions of the large debt rating agencies
Italian public. Our ten-year bond – which yields 3.51% – is the only government bond from large European countries to have remained substantially stable. The interest rate on the German Bund – which now yields 2.86% – has increased 23.3% in the last year. The French Oat of 13.5% and now yield 3.56 percent.
All this did not go unnoticed even in the eyes of the international press. Yesterday the Financial Times dedicated an article to Italy and Spain stating that they are leaving behind the label of “periphery” of the Eurozone. The financial newspaper says that investors reward its budget discipline, instead fearing the sharp increase in debt in other Eurozone economies traditionally considered safe. “We are seeing a merger between the periphery and countries previously considered safer investments, such as France, Belgium and Austria,” observes Ales Koutny, head of international rates at Vanguard, adding that “markets have long memories, but with the right incentive they are willing to move on.” On the other side of the fence, however, there are countries like France that are experiencing significant political and economic difficulties, with a paralyzed government that is also struggling to put the accounts back on a sustainable trajectory. While Italy is next
year will emerge from the infringement procedure for excessive deficit, Paris will have to struggle a lot to achieve this by 2029 as it promised to the European Commission. “The enormous public deficit – the article continues – and the political turbulence in France have pushed borrowing costs above those of Spain” and “even Germany, the de facto safe haven of the Eurozone, has been subject to a revaluation by the markets after launching a trillion-euro spending plan”.
The German economy is trying to emerge from the shallows of recent post-covid years, with Chancellor Friedrich Merz having to deal with the crisis in the driving automotive sector hit by duties and rigid European restrictions on internal combustion engines.
Despite having public debt at much lower levels than Italy and France, Berlin has a growth problem and a crisis in its development model, no longer being able to count on low-cost gas from Russia to fuel its industries and the deterioration of trade relations with the Chinese end market, where Beijing’s electric cars are instead making progress.
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