On the first day of market opening since the Draghi government was sworn in on Saturday 13 February, the financial community confirms its support for the new executive. Piazza Affari closed the session up by about 1 point (after a performance of over 7% in the 10 days prior to the inauguration of the new ministry) and the spread consolidates its decline to around 90 basis points after hitting a minimum of 89 basis points, associated with a ten-year BTP yield of 0.44% on 12 February. But what will be the evolution of the differential between the yield of BTPs and that of Bunds in the coming months?
Despite the risk for Italian public finances remains high, Equita analysts believe that Draghi’s appointment as Prime Minister, his international credibility and continued support for ECB purchases drastically improve Italy’s risk profile and could shift capital flows to Italy and the European Union. From the mandate to form a new government last February 3, they observe the BTP-Bund spread decreased by approximately 25 basis points, from 113 to 90 points – at the lows of the last 5 years, with the yield of the BTP at 0.48% but we see room for a further reduction, with benefits above all for financial stocks.
Spread down towards 50-60 points
Filippo Diodovich, senior market strategist of the online broker IG Italia agrees with this approach. According to Diodovich, the credibility of a government with Draghi would decrease the country risk for Italy, with a sharp decline in the coming weeks on the levels of Spain and Portugal. It means – continues Diodovich – that the differential with the German Bund it could fall between 50 and 60 points, bringing the yield of BTPs just above 0.1%. In this case, the savings from one billion could rise to one and a half billion. A financial dividend but also a political one, considering that Italy could at this point do without the Mes (with interest at 0.15%), removing a rather difficult obstacle for the new government from the field.
Azimut: Watch out for the rise in the Bund yield
Nicol Bocchin, head of fixed income at Azimut, appears to be more prudent. A consensus has been formed in recent days around the hypothesis of a decline in the BTP-Bund spread to around 50-60 points over the next few months. In reality, the phenomenon we are witnessing in recent weeks is not so much that of a convergence of the yield of Italian BTPs towards that of the German 10-year Bund, as to an increase in the latter, he stresses. In fact, while the remuneration of the ten-year BTP has remained stable for some weeks around a value of 0.50% (with a minimum of 0.44%, as we have seen), the yield of the German Bund went from -0.64% in December 2020, to -57% at the end of January to -38% today. Due to fears of a rekindling of inflation, we are witnessing a rise in the yield on medium-long maturities of all German and partly French issues. The scenario that I believe most likely in the coming months is a slight decline in the remuneration of the Italian 10-year BTP, towards 0.40 and a gradual increase in that of the Bund towards -0.20% or zero. In this case, the BTP Bund spread will certainly narrow, but mainly due to the upward mobility effect of the German Bund. In this scenario, Italian investors will not have to expect large gains from the drop in the spread because the prices of Italian government bonds, if their yield remains stable, will also tend to move slightly..