Italian Sovereign

Portugal is limbering up for its first benchmark of the year in a week heavy with eurozone periphery sovereign issuance, including an auction where Italy’s three year yield nearly dipped below zero.

Spain has mandated for its first deal of the year, but the sovereign has taken the rare step of bringing a syndication in the same week as it is holding auctions.

Commerzbank this week became the latest bank to lose its place on a sovereign’s list of primary dealerships, raising a familiar, weary groan from SSA bankers worried about the future of the model — but the head of a major eurozone sovereign has said that issuers are on the banks’ side.

Italy added to a week of record low auction yields for the eurozone periphery on Thursday — and more could be on the way as the sovereign lines up to sell longer dated debt on Friday.

The versatility of equity-linked debt in today’s hot market was in evidence again on Monday, when the City of Turin used the product for the first time to raise €150m of five year debt against its stake in Iren, the Italian multi-utility group.

There were strong signs on Thursday that investors are betting heavily on further monetary policy easing by the European Central Bank, as Italy sold debt at a record low yield.

Italy could sell three year debt at its lowest ever yield on Thursday, with its secondary levels hovering near all-time lows. It would be the second record breaking auction for the sovereign in two days, after it placed one year bills at its lowest ever level on Wednesday.

Political risk appeared to be influencing investors’ decision making on Monday, as a trio of eurozone periphery sovereigns underperformed their peers in secondaries. But there was better news for Cyprus, which more than halved its one month borrowing costs at an auction.

Italy hit its lowest yield since the introduction of the euro at a five year bond auction on Thursday, where it also slashed nearly 35bp from its 10 year borrowing costs.

Italy sold debt with a negative yield for the second day in a row on Wednesday, as it prepares for a sale of longer term bonds amid strong speculation that the European Central Bank will expand quantitative easing in December.

Uncertainty over the make-up of the Portuguese government following an inconclusive election is playing havoc with the sovereign’s yields — but analysts warned it is not alone in suffering from potential political risk.

Portugal is underperforming its nearest peers in the eurozone periphery ahead of a debt auction later this week, amid tense talks to form a government for the country.