Italian Sovereign

Italy looks set to auction 10 year debt at the lowest level since 2005 on Friday after the sovereign’s yields dropped after the Bundesbank’s president hinted that the German central bank would not block quantitative easing or other extraordinary measures in the eurozone.

Italy gears up for an auction of 10 year debt this week amid signs that a rally in its debt since the start of the year has found a plateau.

The gargantuan Italian retail investor base is set for a shakeup after the sovereign brought long awaited changes to its BTP Italia product and the government proposed tax changes that could make government bonds more enticing for individual buyers.

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.

Italy’s next syndication could be a 15 year nominal bond after it auctioned the tenor at a euro era low on Thursday, SSA Markets can reveal. The sovereign’s funding target for the year could also shift after the country’s prime minister revealed a raft of tax cuts and labour reforms this week. Meanwhile, Ireland made a comfortable return to bond auctions on Thursday.

Italy flew into a buoyant euro market with its first syndication of the year on Wednesday, raising €4.5bn with a doubly oversubscribed September 2024 inflation linked bond. But the sovereign has not finished business for the week — it auctions €6bn-€7.75bn of fixed rate bonds on Thursday.

Italy picked banks for its first syndication of the year on Tuesday, a long-awaited 10 year eurozone inflation linked bond that comes during a busy week of auctions for the issuer.

A remarkable start to the year for the eurozone periphery is in clear view in this month's sovereign funding scorecard. Just two months into the year, Portugal has completed more than half of its target, while Ireland is not far behind. At the other end of the volume spectrum, Spain is making good headway in tackling its €133.3bn target with 26% completed, while Italy — which has yet to sell a syndication this year — is behind on 18%.

Are investors on crazy pills? Some might say it’s the only rational explanation behind Italy’s yields hitting lows last seen before the sovereign debt crisis. But there is method to the madness.

Borrowers in the eurozone’s periphery can do no wrong at the moment and nor can any wrong be done to them, it seems. Madrid has smashed its longest tenor record with a private placement, which came amid a series of strong data and rating actions for the eurozone periphery. The Spanish and Portuguese sovereigns are set to benefit from the optimistic conditions when they auction debt later in the week.

With Enrico Letta joining the long list of Italian ex-prime ministers this week and the path clear for young pretender — and more zealous reformer — Matteo Renzi to take the reins, things are looking up for Italian bonds. Well, if they could be even more up since the spectacular start to the year for the periphery.

Italy hit its maximum target and wiped basis points off its funding costs at an auction on Thursday, but the country’s latest political turmoil threatens to blow its debt recovery off course.