Stare edge of the abyss and do not understand it. There are "formulas" that measure more than others, the dangerous state of our economy, but that for many Arabs. A typical case is the expression that is bouncing all the media these days: the "BTP-Bund spread." What is it? And why suddenly has become so important? We seek to understand the function of this thermometer on the default risk in Italy.
This is the difference (delta or spread, in fact) between the return of two long-term bonds (10 years):
• BTP (Good Treasury deferred)
• Italian and the German Bund, equivalent to that of its reliability as a reference European (and world).
The spread increases when investors prefer the titles considered most reliable, the German Bund in fact, the Italian one, that is issued by a State with a rating of less reliability. In contrast, when the spread is reduced means that the perception of the riskiness of our country by investors is decreasing.
But what is the reliability / risk of a state? Essentially in the possibility that it is able or not to pay interest on its debt, that is on government bonds issued. The term "risk sovereign. "The reliability of a long-term investment - such as the ten-year BTP - then gave the measure of the health of an economy and how crushed by the weight of public debt.
E 'news these days that the differential between the two titles is smashing all records and touched the 210 basis points (ie 2.1%), the highest level since the birth of the euro. This means that the markets perceive more risk in the Italian situation.
In the past, before the birth of the euro, the spread was much greater. In 1995 it reached nearly 7%. But then there was still the pound and the mark and the index was "spoiled" by the exchange rate risk, ie changes in the cost between the two currencies. And indeed were the days of the "supermarket" that reached the ceiling of 1,250 pounds and preferred markets bonds linked to hard currencies.
Now we no longer have the "alibi" of different currencies. The coin is unique - the euro - and the difference lies in the sovereign risk. Investors fear the mountain of our public debt, the largest in Europe. Among PIIGS (the acronym is a bit 'disparaging of showing the five countries most hesitant) Greece owes a debt to the Europe of 236 billion dollars, 286 billion of Portugal, Ireland's 867 billion, the Spain 1.1 trillion. Italy all off with a debt of 1,400 billion. Borrow money to someone that creditors already at the gates?
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