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I hear a lot of chatting about BTP/Bund spread recently. I am not familiar with this concept. Could you explain what it is and what it means, in layman's terms?

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BTP are bonds offered by the government of Italy.

Bunds are bonds offered by the government of Germany.

German bonds (bunds) are thought to be the safest bond of all the government bonds in Europe.

The BTP/bund spread is a way to measure the risk of other bonds by comparing their yields to that of the German bund.

For example, if the yield on BTPs are 8% while the yield on bunds is 3% then the BTP/bund spread is 5%.

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  • Roughly speaking, the spread is the market estimate of the default risk of the Italian government. The spread has gone up quite a bit since the EU worked out a deal in which Greece would be allowed to default. – MSalters Aug 5 '11 at 8:36
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    A small clarification (nothing incorrect in this answer but it could be misunderstood): “Bund” does not mean “bond” in German, it means “federal government” so, in this context, “bund” means bonds from the German federal government. – Relaxed Nov 28 '13 at 14:56
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http://blog.tooby.name/2011/07/18/economics-for-dummies-cose-lo-spread-e-perche-e-importante/

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    Good, but do you have any resource in English? – Stefano Borini Aug 3 '11 at 20:21
  • @Stefano Borini: did you forget how to read in Italian? :) – Marco Demaio Oct 3 '11 at 14:48
  • @Marco : almost, but the main reason is that I prefer to get the English jargon, so I can move my knowledge on English-based information (which is the one I access the most) – Stefano Borini Oct 4 '11 at 13:45

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