And in Draghi’s Italy, now an orphan of the ECB bazooka, the BTP-Bund spread anxiety returns.
Within a few sessions, the spread widened to over 190 basis points, against ten-year rates which, in the wake of the jump in those of US Treasuries, are pointing straight to 3%, currently hovering around 2.89% .
In fact, Christine Lagarde’s ECB has already indicated that it has a plan in mind to continue to hold off speculation against Eurozone sovereign bonds, as it has done over the last few years. But the moves may not be enough, as they are not seen as a real anti-spread shield.
The plan, recalls an article by Bloomberg, is already ready and provides for the reinvestment of the repaid capital on maturing securities under the PEPP (pandemic QE, officially concluded at the end of March 2022) at least until the end of 2024.
But a Bloomberg article written by economist David Powell writes that the reinvestment tool would be a woefully inadequate answer and would also fail quickly should spreads explode upwards “, in a context where bonds face the acceleration of inflation.
“According to some sources, the staff of the ECB – writes Powell – is working on a new tool – which could be really needed”.
In the specific case of Italy, it is recalled that “the monetary authorities (or the ECB) bought 12.5 billion euro of BTPs, with the PEPP, to stem the crisis that was emerging in the spring and early months of 2020 (following the outbreak of the Covid-9 pndemic, which is officially traced back to March 2020) “.
This bazooka, now, is no longer there, and the effects can be seen, given that the 10-year BTP-Bund spread is not so far from the threshold of 200 basis points, far from it, now traveling above the quota 190, up to 192, at the top since May 2020 – therefore, the Pepp effect of the ECB has practically already eliminated and, a detail even more painful to digest, more than doubled from the minimum to 90 basis points in February 2021, when the markets, seized by euphoria, applauded the birth of the Draghi government. At the time, 10-year BTP rates had capitulated to an all-time low of 0.45% in February.
Aimed at those who have often complained about Europe. Bloomberg recalls that the purchases of BTPs affected the total number of government bonds in the euro area purchased by the ECB with PEPP shopping “Disproportionately”.
From March to May 2020 – therefore in full Covid pandemic emergency –the ECB purchased € 37.4 billion of Italian public debt securities, through the PEPP, for an amount of 12.5 billion euros per month, on average. The central bank bought a similar amount of BTPs in the months between June and July 2020.
The intervention, recalls the news agency, helped prevent a crisis for Italy, struggling with the economic damage caused by Covid lockdowns.
Lo spread BTP-Bund it had actually widened to 280 basis points to mid-March 2020, up from 130 basis points in mid-February. Subsequently, by the end of July, it had reduced to 145 basis points, thanks to the saving action of the ECB, and pending the advent of Mario Draghi.
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Spread BTP-Bund, Draghi: “I’m not a shield against any wind”
It must be said that, in the face of whom even renamed it King Midas of bonds, from the beginning, Prime Minister Mario Draghi made it clear that he did not want to be considered the Italy’s anti-spread care.
Concept that he also reiterated yesterday:
“I am not the shield against any wind. I’m a human, so things happen “, Draghi said yesterday, during the press conference on Aid Council of Ministers approved – When rates rise, spreads typically increase as well. The thing you have to ask yourself is if the spread compared to other similar countries has increased, because this would mean a negative opinion on the part of the markets towards the economic policy of the country in question. And this did not happen, at least in a sensitive way “.
But didn’t it really happen? Not really: some numbers don’t exactly advertise progress to the Draghi government and indicate how in reality the fear of an Italy spread that has widened against other countries, feared by Draghi, is already reality.
Lo spread BTP-Bonostherefore Italy-Spain, is at an altitude of 86, at their highest since June 2020 and compared to 60 at the beginning of the year, therefore, among other things, the maximum since June 2020 has risen:
To this we can add another comparison: Lo spread Bonos-Bund, therefore Spain-Germany fluctuates at a much lower level than the BTP-Bund one, that is around 105 basis points (against the over 190 points of Italy-Germany).
Unfortunately for Italy and for Draghi, in the face of the boom in the BTP-Bund spread, which from 135 points at the beginning of the year went to 190, thus gaining 55 basis points, the Spain-Germany spread advanced from 75 to 105 basis points, that is, it went up 30 basis points, less quickly.
And Bloomberg Economics warns that, even if the ECB decides to make the capital key rule further flexible, as it did with the 2020 PEPP, the purchases of BTPs could amount to just 2.7 billion euros per month – using the instrument of capital reinvestment – against a rather narrow endowment, equal to just 150 billion euros over the next year (year, we recall, of political elections in Italy).