Italian Sovereign

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.

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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.

SSA bankers lauded Portugal on the timing and execution of a dual tranche benchmark deal on Tuesday, as investors ploughed into the offering. Elsewhere, Spain revealed its syndication plans for 2015 and Italy broke records at the long end of the curve.

Portugal is set to visit the 30 year part of the curve for the first time since 2006, after mandating banks for a rare dual tranche deal on Monday. Italy and Spain are also rumoured to be looking at euro deals this week, which is already busy with auctions in the eurozone periphery.

Eurozone periphery yields dipped on Thursday after the latest sovereign bond buying wink from European Central Bank president Mario Draghi. That bodes well for Italy, which has a pair of auctions lined up for next week, while Spain was able to cut its long dated funding costs at auction on Thursday.

Although the eurozone sovereign debt market shrugged off a collapse in Greek bonds this week after the country brought presidential elections forward, other periphery countries could still see sell-offs around their own votes next year, bankers warned this week.

A pair of eurozone periphery sovereigns suffered rising yields at short end auctions on Wednesday, as the region’s bonds sold off for a second straight day in secondaries.

Greece’s yields went spiralling into orbit on Tuesday ahead of an auction of the country’s short term debt on Wednesday, with the yield on its five year comeback syndication from earlier this year reaching its highest level yet.