In the latter period, we often hear, perhaps too much, talking about spreads between the BTP and the German Bund . This has fueled some confusion in the definition of the term which, in the economic and financial sphere, is used in various applications. Among these we find, of course, that of financing.
But what is the loan spread?
Does it have the same meaning or significance as that between government bonds? Is it formally the same? We try, in this article, to answer all these questions by making some clarity on the subject.
Let’s start by saying that the spread between German BTPs and the Bund is the yield differential between Italian government bonds and German government bonds of the same maturity. Obviously, this calculation, which is defined in basis points, can be replicated on all government bonds, taking, however, as a reference only and always the German ones since, in the Eurozone, they are the most solid and guaranteed. To calculate it, therefore, it will be sufficient to find the difference between the yield offered by a ten-year BTP and the yield offered by a bund, which is also ten-year.
The spread on mortgages, on the other hand, is another matter entirely
The meaning of the word, of course, is however the same. Spread, in English, indicates a differential, a scissor, a fork. Comparing two things shows us that in one there is a sort of addition. All those who approached the complex world of mortgages and loans realized that the interest to be paid on the installment saw the presence of the interest rate (fixed, variable, variable with cap or mixed, whatever) plus a spread added by the bank or by the financial company that pays the sums.
And it is many times the spread that, in fact, leads us to say that the offer of a financial institution or a credit institution turns out to be cheaper than another. The spread, therefore, is the fixed fee that is due to the bank according to the signed contract.
The spread appears to be independent of what the purposes of the loan are
We therefore begin to conclude that, for the consumer, the most economically convenient mortgage is the one capable of guaranteeing the lowest spread applied by the bank. It is clear that this claim will be much easier to make at a time of increased competition between banks, not at a time of credit crunch like this.