Italian Sovereign

Italy polished off a bumper round of issuance this week with a yield busting auction on Friday, as a breakthrough in US debt ceiling negotiations boosted conditions for the sale and provided optimism ahead of what is set to be a busy period of issuance for the periphery next week.

Italy’s 12 month borrowing costs dropped to their lowest level since June at auction on Thursday, as the country enjoyed the after effects of a resolution last week to a long running dispute in its coalition government. The sovereign is set to auction longer dated debt on Friday, but another round of political instability could be brewing.

Italy and Spain shrugged off suggestions that bringing new syndications this week would be too risky for peripheral sovereigns when they printed deals on Wednesday afternoon that attracted more than €10bn of orders apiece.

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.

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

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

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.