The Spread Goes Up: The Impacts on Savings, Mortgages Loan and the Economy

When the spread between German BTPs and Bunds increases and above all when, as in these days, this happens in a sudden way, a generalized panic spreads that involves all sectors of private finance, from the investments of the small saver to the mortgages contracted for the purchase of the house where you live. One wonders for example what are the forecasts on the Euribor and on the Eurirs , or if it is the case to sell the government bonds or the equity ones

Never as in these moments it is essential to distinguish and not to make “all the grass a bundle”. After all, a reasoned analysis is possible, also by virtue of the fact that the history of the recent past can teach us something.

Read also: The spread on the rise: risk for Euribor and mortgage rates?


The Italian political situation


 The Italian political situation

Those who thought that the choice of Cottarelli as the new President of the Italian Council would have held back the spread of the spread was disappointed, at least in the first few days after the appointment. Below we analyze what impacts could be in different sectors of the Italian economy . An important note: these considerations are valid in a scenario of a rise in the BTP / Bund spread , but not of a possible exit of Italy from the Euro, whose effects, very different and difficult to predict, are not included in this analysis.


The impact of the BTP – Bund spread on Italians: investments in government bonds


The impact of the BTP - Bund spread on Italians: investments in government bonds

One thing is certain: those who have invested their savings in BTP at this time cannot be particularly cheerful.

The BTP / Bund spread indicates the differential between the returns of the two different types of government securities, with the same official rates defined by the ECB. A sudden increase in the BTP rate lowers the value of the BTPs already issued.

Suppose we have purchased a 10-year BTP: if we intend to keep it until it expires we should not have major problems, apart from complaining about a choice that, had it been made today, would have led to a higher return. If instead we needed to sell the BTP, we would find a lower price than the purchase price: the new BTPs will provide a better rate and those already in place, which will therefore be less convenient and will be penalized by the market

The impact on Italian banks


The impact on Italian banks

Italian banks are obviously the ones most exposed to the increase in the spread , as they are among the main supporters of our country’s public debt. Compared to the 2011 crisis, some things have changed: in particular Quantitative Easing, or the purchase of government bonds by the European Central Bank, has contributed to a lower exposure of the banks in this regard. However, it remains a weak point of the Italian system, and in fact the quotations on the stock market of the banks are in decline.

But the effect on the banks is also another, and it is very important because it reflects on other important aspects of the Italian economy: an increase in the spread means that the banks increase the rates for loans to companies and individuals. Let’s look at the impacts in detail

The impact on Italian companies

The impact on Italian companies

Companies generally need to finance themselves, and they obviously use banks. An increase in financing costs certainly has a negative impact on the financial statements, and this can have repercussions on the stock, for listed companies.

These effects may not be very short-term, but a high spread over a long period can put Italian companies in difficulty. And the effects on the stock exchange can be anticipated based on this perspective

The impact on mortgages and forecasts on Euribor and Eurirs

 The impact on mortgages and forecasts on Euribor and Eurirs

What can be the impact on mortgages instead?

Here the discussion becomes articulated, and it is important to make distinctions:

  • for those who already have a fixed-rate mortgage the risks should be limited (the installment is unchanging over time by definition), although prudence requires that attention to market events never be relaxed
  • variable rate mortgages are often indexed to the Euribor : in this case there should be no particular jolts, as the Euribor forecasts depend largely on ECB decisions on rates and quantitative easing. Even in the past, with the crisis triggered in 2011, there was no strong correlation between Euribor and an increase in the BTP / Bund spread

Also read: Euribor forecasts

For the new mortgages, on the other hand, the situation is different: in this case, in fact, the banks, for the reasons mentioned above, should increase the rates at which to grant the loans over time. Here, then, that the new mortgages could be more expensive due to another “spread”, the one that the banks apply in addition to Euribor or Eurirs respectively for variable or fixed rate mortgages.

Also read: The Eurirs forecasts for fixed-rate mortgages

In summary, the real problem could arise for new mortgages (or subrogations), which could be less advantageous than current ones and which could act as a brake on the real estate market.


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