Greece-Italy spread collapses from 1,000 to 12 basis points: what happens?


Over the last few years, spread between Italy and Greece it has literally collapsed.

The yield differential between ten-year government bonds reached peaks of thousand points during 2016. But then things changed and these (impressive) figures started to compare with much smaller figures.

Just to give an example, yesterday, Monday 28 October, the Italy-Greece spread approached threateningly the threshold of 10 basis points, but why?

Italy-Greece spread down: what happens?

At the time of writing, the yield on our ten-year government bond is trading around the1.092%, down about one percentage point. At the same time, the yield of the Greek security is falling to1.21%.

As a result, the spread between Greece and Italy is traveling on the threshold of 12 basis points. The reasons? Multiple.

Certainly, the performance of the Italian bond has played a fundamental role the outcome of the elections in Umbria, which again put the holding of the Giallorossi executive at risk. In just one day (yesterday) BTP-Bund spread has returned to touch peaks of 150 basis points, thanks to the rise in our returns and the increase in risk.

Not to be underestimated then the promotion of Greece by Standard & Poor’s, which revised upwards the rating to «BB-» from the previous «B» also confirming the short-term rating of «B».

The positive outlook, the future structural reforms and the possible further reduction of impaired exposures in the banking system: these are the elements that have stimulated the agency's optimism.

For all these reasons the Greece-Italy spread has narrowed to around 12 points between yesterday and today. If the trend shows itself to be constant we may soon be able to witness a real one overtaking.

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