Italian Sovereign

Italy smashed its five and 10 year yield records at auction on Thursday, as the eurozone periphery enjoyed strong interest from investors.

Spain scored its lowest coupon and biggest deal in the 15 year part of the curve on Wednesday, as eurozone periphery sovereigns enjoyed enviable conditions.

Italy hit record low yields at auction and Spain paid a tenth of a basis point to place bills amid strong signs that Greece will receive a bail-out extension.

The proximity of a deal to extend Greece’s credit lifeline compressed eurozone periphery spreads on Monday, boding well for a flurry of auctions and a potential syndication this week.

The Republic of Italy has nipped in with a couple of long dated privately placed deals that took advantage of the curve flattening in the euro market since the European Central Bank announced a programme of SSA bond buying just over a week ago.

After a benign start to the week for sovereign and agency borrowers in the eurozone periphery in the aftermath of the Greek general election — allowing several issuers to print paper at record breaking low yields — the fears of a political standoff between the new Hellenic government and its European peers led to a softer tone mid-week. But public sector bankers remain confident that Greece’s problems are, in the short term, its own.

Italy bust borrowing cost records at an auction on Thursday, but investors will be eyeing the progress of the country’s presidential election that started the same day. While a failure by the government to have its selected candidate elected would not trigger a general election — unlike Greece, where just such a development created a major political event in Europe — it would be viewed as a lack of support for prime minister Matteo Renzi, said analysts.

Periphery eurozone sovereign yields rose on Wednesday as a freshly elected Greek government hinted that it is prepared to take a bullish stance in relations with its European Union partners. But rather than being a result of contagion fears from Greece to the rest of southern Europe, SSA bankers blamed the yield increases on technical factors — boding well for a pair of auctions on Thursday.

Italy and Spain showcased what can be achieved in the new world of eurozone sovereign quantitative easing, as they hit record low yields at their first auctions since the European Central Bank announced its QE programme last week. With two more days of auctions ahead of it, Italy could break even more records this week.

The European Central Bank’s larger than expected quantitative easing programme provided a bulwark to eurozone periphery sovereign yields outside Greece on Monday, boding well for a string of auctions this week. The countries’ set to auction this week are enjoying yields close to the record lows they hit after the QE announcement at the end of last week, despite a clear win for anti-austerity party Syriza in the weekend Greek election that pushed that country’s yields much higher.

Rating: Baa2/BBB+/A-

Duration is for the second time this week the choice for a periphery eurozone sovereign, after Italy mandated banks for a 30 year benchmark on Wednesday. But there was more woe for Greece at the very short end, as yields on its 13 week bills rose by 25bp at auction.