Italian Sovereign

Italy’s coalition government is taking investors on a wild ride, with different voices emanating from the populist grouping quickly shifting sentiment among the buy side. But the juicy spreads the sovereign offers over its peers has helped provide some respite from the sell-offs, said analysts.

BTPs sold off on Friday morning ahead of the Italian government’s crucial 2019 budget review, with yields reaching their highest level in two months.

LCH RepoClear has raised its margin on several Italian government debt securities, but the market reaction has so far been muted, according to analysts.

Investors are upbeat about the prospects for Italian government bonds, believing that “market forces” will act as buffers to the effects of exuberant populist government policy. The sovereign had an auction of medium to long term debt this week that was well supported.

Investors are upbeat about the prospects for Italian government bonds, believing that “market forces” will act as buffers to the effects of exuberant populist government policy. The sovereign should be supported at the long end during an auction this week, said some But in the core of the eurozone core, some investors are looking to keep things short.

Italy faced an auction test on Thursday morning and came out with a result that traders said “wasn’t that bad”, despite the political uncertainty facing the country.

In an age where the triumph of populism has shown that communication trumps all else in politics, it’s strange that the Italian iteration of this trend is struggling with something that couldn’t be clearer — its sovereign debt auction schedule.

Italy’s bonds suffered another day of rising yields on Thursday after the country’s government appointed Eurosceptics to head financial committees.

Sovereign debt officials praised the role primary dealers played during the volatility that hit eurozone government debt markets in the second quarter, though some still feel the system is “not ideal”.

The recent swings in the sovereign, supranational and agency bond market due to political turmoil in Italy suggest issuers will have to change the way they execute deals in the coming months. Elsewhere, eyes are still trained on the European Central Bank’s tapering plans, while rising dollar yields are failing to attract SSA investors. Jasper Cox reports.

Quantitative easing, perhaps the single most important factor affecting bond prices over the past three years, could be coming to a long awaited end this year. Members of the European Central Bank governing council seemed to hint as much this week, causing govvie spreads to gap wider, writes Lewis McLellan.

The Basque Government this week gave one of the best signs that investor worries about Italy’s political situation are unlikely to spill over to other countries as it printed a three times subscribed debut sustainability bond.