The agreement led to healthy risk appetite among investors, and many shunned safe havens to pour cash into southern European government bonds.
The trend bodes well for January, when Deutsche Bank reckons the Republic of Italy will print €22.8bn of debt and the Kingdom of Spain, €12bn.
Italian 10 year yields were down 19bp on the day at 3pm on Wednesday, while Spanish 10 year yields had dropped 18bp.
Portuguese 10 year yields have fallen 34bp since the morning, reaching 6.548% — their lowest level since December 13 2010. The positive sentiment came despite Portuguese president Aníbal Cavaco Silva on Tuesday requesting the country’s constitutional court to rule on whether the 2013 budget — signed into law a day earlier — was legal.
Portugal is expected to sell €6.6bn of bonds this year, according to Deutsche Bank. Any new issues would be its first new long term issues since accepting an EU bailout in May 2011. The sovereign has sold bills during that time, however, and did a debt exchange last year.
Auction activity
Italy has three bond auctions scheduled this month. It plans to sell three year debt on January 11, two year debt and inflation linked notes on January 28 and five year and 10 year debt on January 30. It will also auction 12 month bills on January 10.
Spain will auction 12 month and 18 month bills on January 15, three month and six month bills on January 22 and long term bonds on January 17.
Both sovereigns made strong showings at their auctions in December, after a sometimes tumultuous 2012. Italy was able to print more than €17bn of debt in the twilight of 2012.
The December auctions came after outgoing prime minister, Mario Monti, said he would be willing to lead the country’s next government following elections in February, news that investors welcomed.
The treasury hit its maximum target of €3bn of 10 year debt in an auction on December 28, at a yield of 4.48% — a slight increase on the 4.45% it had paid at the same tenor a month earlier.
Italy also printed €2.87bn of five year paper on the same day, slightly below its €3bn target and with a yield of 3.26%, up 3bp on the previous auction of the debt in November.
Italy had sold €8.5bn of six month paper and €3.25bn of two year zero coupon debt a day earlier.
Italian bonds cheapened early in early December when Monti he would stand down after Silvio Berlusconi withdrew his party’s support for the government.
However, bond yields quickly recovered and Italy was able to hit its targets, and keep yields steady, in its December auctions.
