Btp-Bund spread at 115 points, Treasury places bonds at lower yield as Fed decision looms

The spread between Btp and Bund fell to 115 basis points at the opening of trading on October 27, with yields on Italian ten-year government bonds at 4.50%. The movement comes in the week when the Federal Reserve is set to make a monetary policy decision.

On the Milan exchange, the FTSE Mib fluctuated during the session between positive and negative territory, with Stm and Snam among the stocks posting the best performances. On the same day, the Treasury placed 2 billion euros of short-term Btp, at a yield that fell to 3.55%: an auction that confirms the downward direction of short-term rates also observed on the spread.

The context in which these figures are moving is that of the Federal Reserve meeting, scheduled for October 27 and 28, from which the US central bank is expected to emerge leaving rates unchanged in the range between 3.75% and 4.00%. A survey conducted by the Reuters agency among one hundred economists found that ninety-four expect rates to remain steady at this meeting, but that the entire sample nonetheless expects a hike in December. The last 25-basis-point increase dates back to the September 16 meeting.

The combination of these elements — a spread at 115 points, falling Italian yields, a short-term auction on more favorable terms and an almost unanimous expectation of steady rates overseas — describes a phase of markets moving cautiously ahead of an event considered, in the forecasts of the economists surveyed by Reuters, a foregone conclusion for October but not for December.

Indicator	Value
Btp-Bund spread	115 basis points
Ten-year Btp yield	4.50%
Short-term Btp yield (auction)	3.55%
Expected Fed rates	3.75%-4.00%

The yield on the short-term placement, down to 3.55%, remains the most recent available figure on the Italian Treasury’s short-term financing conditions.