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Italy Bond Sale

Italy’s 10-year borrowing costs slid to their lowest in more than eight years at a well bid bond sale on Thursday in a further investor endorsement of the new government’s ambitious reform plans. With appetite for emerging market assets also soured by tensions between Ukraine and Russia, investors snapped up the 9 billion euros of the still relatively high-yielding Italian bonds offered. Safe-haven German Bunds were also in demand.

Lower-rated euro zone bonds have benefited from recent positive news in the currency bloc, including the naming of a new government in Rome, which is perceived to be reform-minded, and improved credit ratings and outlooks for Spain and Italy. Italy sold the new 10-year bonds at a yield of 3.42 percent, the lowest since October 2005 and some 5 basis points below secondary market levels. Yields on the current 10-year bond fell 8 bps to 3.46 percent after the auction, their lowest since January 2006. Thursday’s auction came after Italy raised up to 12 billion euros earlier this week, the first sale under Matteo Renzi’s premiership after Enrico Letta’s resignation last week.

With German 10-year yields a mere 4 basis points above 2014 lows of 1.51 percent, yield-hungry investors were increasingly snapping up lower-rated euro zone bonds. Spanish 10-year yields fell 4 bps to 3.50 percent and Irish equivalents dropped 7 bps to 3.10 percent. Junk-rated Portuguese yields were 4 bps down after Lisbon bought back 1.32 billion euros of bonds in a move aimed at easing its near-term financing needs as it readies to leave behind an international bailout in May. Further sabre-rattling by Russia, which on Thursday put fighter jets along its western borders with Ukraine on combat alert, gave impetus to this week’s rally in German Bunds and other low-risk euro zone bonds. Bund futures jumped 61 ticks on the day to 145.07, with German 10-year yields 5 bps down to 1.57 percent.

Gary Swiftbonds | Our short bio