Spread floats on the markets followed by the deficit that oscillates dangerously, are two sentences whose incomprehensible words are heard on television but many still fail to understand the real difference and that in the latter period of the year 2018 is alarming the markets that operate with Italian government bonds
Spread is an Anglo-Saxon term used on the stock exchange to indicate the liquidity of a financial market, practically it can be understood as the difference between the rate of return of a bond and that of another security taken as reference in the case of Italy, the BTPs which are set against the BUND (German government bonds), all determined by the equity markets on a daily basis.
In even simpler words we can say that the more the rating agencies lower the reliability of a country, the more the spread increases, which is nothing more than the percentage rate that the investor needs to guarantee his credit, if he does not insure it he would earn the percentage for the loan of money to a state plus the money he claimed was used to secure his credit.
This insurance called CDS (Credit Default Swap) has often been disregarded and speculators have earned us the most and the higher the spread, the greater the investor's gain will be.
At this moment in history, contrary to what many may think, the interest rate at which 10 BTPs are offered on the markets is much cheaper for those who want to speculate, because the interest is dictated by the risk of a security and for in Italy the market in counter-trend, as long as it is not American pension funds, but for those who have an interest in gaining and risking, offers a very interesting return.
With the financial maneuver prepared by the Italian government, the European rejection and the all-Italian stubbornness to not want to revise the welfare positions that do not lead to an economic boost for the recovery but a simple round of play, the yield is subject to fluctuations that can not be foreseen if not downward with the increase in the spread and the increase in risk and therefore in the percentage of return on BTPs so as to be able to place them on the markets.
The Italian spread has risen dramatically with the various contrasts between the vice premier and the European commissioners who on open exchanges played a knock-back and triggering an alarmism in investors that led to the sale of Italian government bonds with relative increase in the spread and increase percentage rate of return.
The perfect storm that is about to unleash and the alarmism shown also to the Italian finance minister by the EcoFin clearly highlights how the sovereign debt is not only tied to the single country but is part of a wider project, which risks the involvement of the other States of the European Union.
Spread is ultimately the difference between two government bonds where the most reliable for stability and financial strength is taken as the basic title, which in the European case is the German Bund (Germany with rating in AAA) and the title that you want to examine and evaluate economically that for Italy it is the BTP and for both the securities are taken as reference the ones with the longest expiry and that is the decennial ones, that give a mirror of the stability and solidity of the economies of a Country.
Now that we have a clearer view of what the "Spread" is, we can also begin to understand why there is a difference expressed in percentile when government bonds are proposed, that is, the higher the risk and the greater the percentage offered long-term on the securities of a State.
The relationship between the spread and the public accounts of a state NO is finely and tightly bound, as the spread could rise and the costs on debt fall, everything is determined by the yield of government bonds taken as a reference that the more solid they are and the lower the percentile, then the government bond with the spread higher at this point offers a controversial greater convenience even with a higher risk stability and vice versa.
For Italy there is a public debt ascertained at around 2300 billion and this debt is mostly determined by the government bonds that from time to time with a ten-year maturity, will lead to those who have purchased an interest in the investment.
Keeping in mind that the savings of Italians amount to more than double the public debt contracted, investors have almost the certainty that the Italian State will honor its debt by giving reassurances to the markets on the convenience of purchase.
Lately it has returned to talk about the Italian spread as the new government that took office in this European state, began almost immediately not wanting to continue the recovery of the economy but immediately made to perceive the markets with various proclamations, which would have done more deficit (debt) putting at risk Italian finances and all its citizens, hiding behind what defines the "maneuver of the people" when it is fully aware of the industrial situation of its state, the inadequacy of its infrastructure now reduced to the light and lack of a serious job offer.
An illustrious personality saved, as far as today we do not want to recognize the merits, Italy by default that many politicians of part called "Perfect Storm" because of the fall of a government, not remembering that when they were touched down on the stock exchange some important companies, their Prime Minister resigned because of a large industrial complex to which he was linked and a law on conflict of interest not fully armored.
The spread had reached and exceeded 500 share, Italy had entered into recession and was not hovering but it was already announced the arrival of the Troika that would have to restore the budgets of the Italian State, when a personality held in high esteem appeared from nowhere European summits that was first appointed Senator of the Italian Republic and then took over the reins of the Italian government, reporting with great difficulty the budgets to an acceptable situation to regain the trust of investors: Prof. Mario Monti.
It is obvious that in order to rehabilitate a budget destined for evaporation, he had to make very difficult and often criticizable financial maneuvers, but thanks to his profound professional knowledge, he managed to avoid the catastrophe that many now say are orchestrated by other States.
In the last interviews that released this high personality, he clearly said that with the assistance maneuver and not of growth also possibly given by a tax exemption for the companies, by a bureaucracy of the Italian system, by a deficit that the European Union could have accepted if oriented to an attempt to growth and lashed to the markets favoring the birth and 'entry of other businesses that create jobs, Italy risks with the high spread, to return to a dangerous recession where its rescue has already been clearly announced with the take money from current accounts and Italian assets giving it to the game at that point, the government securities at very high risk as the rating agencies would define the Italian economic stability at the level of junk Securities and then releasing unnecessary pieces of paper against the game.
Many politicized newspapers have obviously attacked the statements of this illustrious person trying to throw once again smoke in the eyes of Italian citizens but not thinking that the eventual arrival of the Troika would bring the country to its knees like Greece and Portugal, where last with the silence of everyone has seen the volatilization of its weak economy and the vaporization of 80% of its enterprises.
The affirmation of Prof. Mario Monti was dictated by the looming danger for the pockets of the Italians where, if the Italian government bi-party, realizing that they can not satisfy the finding of money on the market in the percentage necessary to maintain electoral promises worthy only of a book of fairy tales, certainly also following the statements already publicly issued by one of the two vice-premieres, would appeal to savings of Italians and the only viable road thanks above all to the very bad Europe, is the opening of current accounts in European countries permitted by the laws in force.
Regarding the exit from the Euro, feared in times before the Government by the two majority parties, Prof. Mario Monti is said to be worried by the scenario that could occur with the exit of Italy from the Euro, where the Government saw the rally of the spread, could prevent the exit of capitals with anti-European and totalitarian laws and then be able to use them for its survival.