Italian Sovereign

Italy is set to join its peripheral eurozone peer Spain in the market this week, after mandating banks for a new 15 year euro benchmark.

Spain has circulated initial price thoughts for a debut inflation linked bond — expected to come on Tuesday. Elsewhere, bankers expect Italy could come with a new benchmark later this month and Portugal moved a step closer to regaining investment grade status.

This week's scorecard covers the funding progress of sovereign issuers, with Belgium, Ireland, Netherlands and Portugal all over the halfway mark on their programmes for the year. Next week's scorecard will deal with European supranationals and agencies.

Italy’s 10 year borrowing costs fell to their lowest level since the introduction of the euro on Tuesday, outstripping a record set in the pre-eurozone sovereign debt crisis days of September 2005.

Italy will drive down its medium to long term funding costs to euro-era lows at an auction on Tuesday, said analysts, despite the sovereign’s short term yields rising at an auction on Monday.

Spain stamped down its funding costs by 20bp-30bp as it slightly overshot its maximum €5.5bn target at an auction on Thursday. The drop in yields was evidence of a recent strong run for eurozone peripheral sovereigns’ debt, which some analysts believe is the result of investors’ expectation that the European Central Bank could soon start quantitative easing. Elsewhere, Italy kept yields near euro-era lows at an auction of two year zero coupon paper and outlined its auction business for next week.

Bankers played down fears on Friday that a widening in Greece’s new five year bond could indicate poor sentiment for the country or the eurozone periphery as a whole, pointing to the limited scale of the sell-off. Elsewhere, Portugal received a ratings boost and Italy pushed down funding costs at an auction.

A busy week of auctions in the eurozone periphery received the best possible start as yields fell on expectations that the European Central Bank will introduce quantitative easing to the currency bloc — sending five year Spanish yields below those of US Treasuries. But despite that sentiment also extending to Greece’s secondaries, bankers warned that the country would be foolhardy to come with a much expected deal this month.

Ireland's return to bond auctions last month helped the sovereign reach nearly 60% of its funding target for the year. Across the Irish sea, the UK started its financial year with a £2.577bn auction - and a reduced funding target of £128.4bn.

Read on to see how selected benchmarks are faring in secondary. Trading levels given are bid-side spreads versus mid-swaps and/or an underlying benchmark as of Thursday's close. The source for secondary trading levels is Interactive Data.

A shot of adrenaline to peripheral eurozone sovereign bonds this week helped set two milestones in the countries’ market recovery on Friday, as Italy auctioned 10 year debt at the lowest level in nearly a decade and five year paper at a record low, while Portugal’s 10 year yields broke through the 4% barrier.

Read on to see how selected benchmarks are faring in secondary. Trading levels given are bid-side spreads versus mid-swaps and/or an underlying benchmark as of Thursday's close. The source for secondary trading levels is Interactive Data.