Italian Sovereign

The Autonomous Community of Madrid showed that sovereigns are not the only issuers welcome in the seemingly never ending parade of barnstorming peripheral eurozone bond syndications since the turn of the year on Tuesday. The region sold its largest ever bond at a pre-crisis spread over Bonos, leaving a clear space in the pageant for other Spanish regions to seek suitors in the coming weeks.

The rampant start to 2014 by peripheral eurozone sovereigns is clear to see in this week's funding scorecard, with the region's comeback kids Ireland and Portugal halfway and a quarter way through their funding programmes already. Spain has also made promising progress in its attempt to hit what is its largest ever funding target, with nearly a fifth of its total already in the bag. Italy will look to move into double figures from its 4% status in the coming weeks with a widely expected syndication.

Italy opted for a privately placed deal to kick off its non-auction funding for 2014, printing a €250m 30 year inflation linked bond. Meanwhile, Spain mandated banks to sell its first syndication of the year — an April 2024 bond.

Italy auctioned three year debt at its lowest yield of the euro era in the first BTP sale of the year on Monday, as peripheral sovereign bonds held gains made in secondaries last week. Spain is set to be the next country to benefit from the rampant conditions with a sale of debt on Thursday.

Italy brought a touch of sobriety to an otherwise giddy week for the eurozone periphery, as its 12 month borrowing costs rose at an auction on Friday. But with its longer dated debt performing strongly in secondaries, the sovereign is unlikely to be perturbed as it gears up for its first bond sale of the year early next week.

Ireland blazed a path for its eurozone periphery peers on Tuesday, as a book in excess of €14bn let it price a bond inside its curve and helped tighten spreads across the peer group — potentially convincing more sovereigns to come this week.

A 10 year euro benchmark for Ireland — the first from a peripheral sovereign, or any sovereign, this year — should be a riot if the spread tightening in Europe’s periphery over the last few trading sessions is anything to go by. More peripheral names are expected to follow if Ireland’s deal is well received.

Comments made by a senior European Central Bank official on Wednesday could have a negative impact on peripheral Eurozone borrowers’ funding costs next year, according to syndicate officials.

Italy’s short term borrowing costs rose at auction on Wednesday, ahead of a government confidence vote that could provide much needed stability to the Italian political scene and improved GDP figures for the third quarter of the year.

Rising money market rates helped push up Spain’s six month and 12 month borrowing costs at auction on Tuesday, with Italy likely to suffer a similar fate when it sells one year debt on Wednesday.

Peripheral sovereigns should not fear if domestic holders of its debt head elsewhere — as Generali said it would do in an investor presentation this week. Overreliance on its domestic investor base isn’t healthy and, now that the sovereign’s yields are tipping 4%, it can afford for its yields to go up a smidge in return for a more diverse investor base.

Italy sold 10 year debt at a shade over 4% on Thursday, the lowest level since April and in line with its levels before it was dragged into the heat of the eurozone debt crisis three years ago.