The imperviousness of the performance of its auctions to domestic political strife in 2013 was proven again on Thursday, as it sold a new five year line and tapped 10 year paper despite worries over the stability of its government.
Italy — which auctioned five and 15 year inflation linked bonds earlier in the week — would print in the 10 year part of the curve if it opts for a syndication, although a number of factors could stay its hand.
“We need a more consolidated opinion on investor expectation of improved economic conditions in the eurozone before we can proceed,” Maria Cannata, director general of the public debt directorate within the Italian Treasury, told SSA Markets prior to Thursday’s auction.
Demand for inflation linked paper is heavily reliant on investor perception that the economy will improve, leading to a rise in inflation.
Minimum fuss
Italy hit its maximum target of €6bn on Thursday, printing €3.5bn of a new December 2018 line and adding €2.5bn to its March 2024 issue.
Yields on the five year were 3.38%, compared to 3.22% at the last auction of a similar tenor on July 30, while bid to covers fell to 1.22 from 1.36.
The 10 year yield stayed constant at 4.46% over the period, with bid to covers rising to 1.52 from 1.32.
It was a “reasonable” result that may have been aided by the country’s coalition government agreeing to repeal a property tax on Wednesday, said Richard McGuire, senior fixed income strategist at Rabobank, in a note.
The issue had divided the two main coalition parties, with some members of one — the People of Freedom (PdL) party — threatening to withdraw support for the government if the tax was not scrapped.
Political uncertainty is still rampant in the country — some PdL members have threatened to bring down the government if their leader, Silvio Berlusconi, is expelled from the senate following the supreme court’s upholding of his conviction for tax fraud earlier this month.
But Thursday’s auction results “give no indication these concerns are having much in the way of a material impact on investor appetite”, said McGuire.
