Italian Sovereign

The Kingdom of Spain’s short term borrowing costs are on an upward march again and could shoot even higher unless the government accepts a bailout package from the EU, analysts have warned.

Italy sold 2015 debt at its lowest levels in two years on Thursday, following strong bidding in the past week after the ECB’s announcement of the Outright Monetary Transactions bond buying programme.

Italy is set to auction up to €6.5bn BTPs on Thursday in a sale that will include the first reopening of the sovereign’s March 2026s since July 2011. The sale will come a day after Italy slashed treasury bill yields in a €12bn auction.

Italy raised over €7bn of long-dated debt on Thursday, its first attempt at accessing duration funding since a strong rally over the summer. But a sell-off in peripheral bonds darkened the mood and doesn’t bode well for Spain’s auction next week.

Italy is preparing to face its first test of international demand since the summer’s SSA market rally — an auction of 10 year debt on Thursday. The debt sale follows a T-Bills auction where Italy achieved its lowest yields since March.

Spain slashed its borrowing costs in a treasury bills auction on Tuesday, underlining an improvement in sentiment towards periphery credits over the summer. Italy is likely to meet with similar strong demand when it auctions T-Bills later this week, said analysts.

Germany, Italy and France started off a busy week of auctions on Monday with €18.87bn worth of short term debt auctions. Investors maintained the eurozone divide between periphery and core, with yields edging up in Italy and down in Germany, and bankers expect this to trend to continue throughout the summer.

Italy raised €5.479bn of debt through government auctions on Monday morning, including a hefty chunk of 10 year money. The sovereign was able to print at much lower yields than it could have done last week thanks to expectations that Europe’s policymakers will intervene to bring down peripheral sovereign yields.

An Italian auction of two year zero coupon paper on Thursday demonstrated that Italy is not immune from the bondholder fears that surround Spanish debt. However, expectations that the Securities Markets Purchase Programme part II might be on its way brought yields hooning in again.

Spain sold over €7bn of bills on Tuesday between three and seven months in maturity while its 10 year yields moved north of 7.5%. Meanwhile, Moody’s shifted the outlook on Germany’s triple-A rating to negative.

Spanish bond yields circled perilously high on Monday. The 10 year reached highs past 7.5% leading to fears that a new — and more severe — stage in Europe’s sovereign debt crisis has been reached.

Italy auctioned a quartet of bonds on Friday morning, following a two notch downgrade of the sovereign by Moody’s late on Thursday night. However, Italy brushed off the ratings cut, hitting its maximum desired auction amount of €5.25bn.