The fear of the spread is back. The spread between Italian 21-year bonds (BTPs) and the corresponding German bonds (Bunds) is starting to rise again. On Monday XNUMXst May, hit 190 basis points while yields shot up to 2,409%, the highest since 2014.
A surge that took place while Luigi Di Maio and Matteo Salvini went to Colle to provide the President of the Republic with iThe name of the next (perhaps) prime minister and after the warnings of the Fitch rating agency, which released a report on Italy in which it is argued that the Lega-M5S government contract "increases the risks to the sovereign credit profile, particularly through fiscal easing and potential damage to confidence."
The reality is that at the moment the situation seems to be under control – we are light years away from the 575 basis points reached in 2011 - but despite the leaders of the two parties continuing to ignore what is happening on the markets, sending fiery messages to the EU, underestimating the movements in the spread could be a mistake.
The rise in the differential between Btp and Bund, regardless of the "level", is never good news and today represents an alarm bell that must be listened to precisely to avoid undermining the "sustainability" of our debt.
SPREAD RISES: WHAT ARE THE RISKS FOR THE STATE?
The European Central Bank establishes identical official rates for all the countries of the Eurozone. He decides on a monthly basis what to do: rates have currently been at their lowest for all for some time as part of the quantitative easing launched in 2015, with which the Eurotower creates money and uses it to purchase financial securities from banks, in order to stimulate the economy of the Member States, allowing them to put the crisis behind them.
The spread is doubly linked to yields, which represent the amount of interest that the state must pay on government bonds. Therefore, with official rates being equal, if spreads and yields rise (as is happening now, but above all as happened in 2011), Italy will therefore be forced to pay higher interest on the debt than Germany because it is considered by the markets to be "more risk” or, as in today's case, “less reliable”.
If, on the other hand, spreads and yields go down and remain low for a certain period of time (daily ups and downs are not enough), the state saves money which in theory he can use for something more "useful".
THE SPREAD RISES: THE RISKS FOR BANKS AND FIRMS
At this point, however, it is necessary to clarify an important aspect: the trend of the spread does not only concern the State or high finance, as many believe - or even better: as many politicians let us believe - but it has tangible repercussions also on the real economy and therefore on the life of every citizen.
If the differential rises, it is not only the State that pays higher interest on the debt, but also banks will pay higher interest to finance themselves on the markets. Italian credit institutions have many, many, Italian government bonds in their bellies. If the risk on the latter increases, so does that on institutions. Conversely, if spreads and yields are lowered, banks will find money more easily and, given that everything is connected, they will lend money to households and businesses not only more easily, but also and above all at lower rates.
Moving from theory to practice, the most striking example is Italy. As explains the Sun 24 Hours, in 2011, with the so-called spread crisis, the cost of short-term debt increased by 80 basis points which, translated into euros, becomes 15 billion of additional financial charges. At the same time, the banks granted less credit to companies, compromising their profitability and investments, e to families: fewer mortgages and with higher interest rates.
The spread will therefore not be the first thing to think about while having breakfast in the morning, but surely ignoring it represents a very, very big mistake.
all financial speculation for the benefit of a few.