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‘Segnali di miglioramento per la febbre degli spread.’ www.ilsole24ore.com

‘Difendersi dallo spread per salvare il sistema’ www.ilsole24ore.com

‘La Borsa chiude in rialzo, spread in calo’ www.repubblica.it

Yes, it’s the word of the moment. All the newspapers are using it – the news readers are using it – the current affair programmes are using it – and, as a consequence, we are all using it too! Over the last few weeks I’ve heard so many people talking to friends, colleagues and family about the political and economic situation here in Italy all using the same word ‘spread’. “Sai dicono che è lo spread. E’ molto preoccupante.” (“They say it’s the spread. It’s really worrying”). “E’ colpa dello spread sai.” (The spread’s to blame, you know.” Everyone naturally nods in agreement, everyone repeats the word but no-one really wants the others to know that the majority of us don’t know what the hell ‘the spread’ is!

It’s typical of the Italian media (but probably in other countries too) to use a new foreign word continuously but neglect to explain its meaning to the poor general public. I’m absolutely no expert in finance, so for an in depth explanation you’ll have to look elsewhere, I just thought I would take the opportunity to explain the word in a very simple way to make it all a little clearer for us non economists.

Well, here’s what it means but let’s keep it to ourselves!

In a financial context the word spread means the difference between two figures (numbers) or totals.

It is currently used to define the difference between the yield (another word used often that means ‘il rendimento’) on Italian government securities and the yield on German government securities or more precisely between the Italian BTPs (Buoni del Tesoro Poliennali) and the German Bunds.

Here are some examples to help you understand (N.B. the numbers have been invented just to simplify).

1. If the yield on a ten year Treasury bond is 6%, and the yield on a Treasury bill is 4%, the difference between these two figures is 2%. The spread is, therefore, 2%.
2. If a high-yield bond pays 8% and a Treasury bill pays  6%, the spread is 3%.
3. If the yield on BTPs is 2.4% and the yield on the Bunds is 4.8% then the spread is 2.4%.

So now when you hear ‘them’ talking about the spread, you at least have an idea of what they are talking about! Let’s hope that in the near future we can all confidently say “Have you heard that the spread has narrowed over the last few days?”

Enjoy learning!

Fiona 😉