Italian Sovereign

Two peripheral sovereigns mandated in the wake of the European Stability Mechanism’s debut on Tuesday, as market tone in euros remained strong despite the clock ticking on the US debt ceiling negotiations and the government still in shutdown. Italy mandated banks for a debut seven year benchmark while Spain hired for a 30 year syndication.

Spain auctioned 10 year debt at its lowest yield in more than three years on Thursday, as markets calmed following the resolution of a political crisis in Italy. Italy will be keen to emulate Spain when it auctions debt next week.

Spain and Italy received a boost ahead of some upcoming auctions, as fears of an imminent Italian government collapse disappeared on Wednesday afternoon.

Spanish and Italian yields recovered in Monday afternoon trading as the latest political rumblings from Italy looked set to be defused, leading to more benign conditions for the sovereigns’ upcoming auctions this week and next.

Austria, Belgium, Finland and the UK were among the European sovereigns to add to their funding totals with benchmark deals this month.

Italian 10 year yields remained steady but demand fell at auction on Friday, as investors digested the latest political news from the country.

Italy’s yields dropped for the second day in a row on Thursday, as a renewed threat to the country’s fragile coalition government failed to derail a six month bill sale ahead of a long dated debt auction on Friday.

Italy’s two year borrowing costs dropped to their lowest level since May at an auction on Wednesday, making a strong start on a busy few days of issuance for the sovereign.

Italy, which had held ambitions to print a long-dated benchmark bond this year, is now turning its attentions towards a seven year deal. Maria Cannata, director general of the public debt directorate in the Italian Treasury, said on Tuesday that the country was also planning to embark on a series of buy-backs and exchanges.

Italy’s borrowing costs rose at both ends of the curve at auction on Thursday, although it pulled in healthy demand to a new three year line and hit its maximum volume target.

Italy’s one year borrowing costs rose to their highest level this year at an auction on Wednesday, ahead of a longer dated debt sale a day later.

Italy found demand at the ultra long part of the curve and Spain scored its lowest 10 year borrowing cost in three years mid-week, as fears over potential military action in Syria and a reduction in US central bank liquidity support failed to derail the eurozone periphery’s journey back to capital market normalcy.