Italian Sovereign

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.

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.