Italian Sovereign
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From Italian government bonds to fallen angels, nothing is junk unless the European Central Bank says so. -
Italy’s credit rating is dividing analysts. Some believe that it should have been downgraded by S&P on April 24 because of the country's ballooning debt burden, while others felt that the European Central Bank can keep the refinancing risk at bay.
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Any concerns over whether the eurozone periphery would have market access after Bund spreads yawned wider during the past week were put to bed by a combined €31bn of borrowing from Italy and Spain. The sovereigns paid what was needed to put impressive dents in their ballooning funding requirements, ahead of a hotly anticipated European Council meeting on Thursday. Lewis McLellan and Tyler Davies report.
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Any concerns over Italy’s market access were vanquished on Tuesday when the sovereign received €110bn of orders for a dual tranche bond syndication, allowing it to raise €16bn as it makes inroads into its enlarged funding task in response to the coronavirus pandemic.
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Trading levels given are bid-side spreads versus mid-swaps and/or an underlying benchmark and bid-yields from the close of business on Tuesday, April 21. The source for secondary trading levels is ICE Data Services.
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Italy mandated banks for a new five year to be sold alongside a tap of a September 2050 bond on Monday as it prepares to bolt on a bigger funding programme in order to fund its effort against the coronavirus pandemic. The sovereign will be joined by Luxembourg in the euro public sector bond market on Tuesday.
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The European Central Bank has been buying Italian government paper well above the pace indicated by the capital key, but has still struggled to keep the beleaguered sovereign’s spread to Bunds in check.
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Italian government bonds sold off sharply this week as worries grew over the sovereign’s debt sustainability after last week’s Eurogroup meeting left any form of debt mutualisation a highly unlikely prospect in the near term. The result is that Italy will have to rely more on support from the European Central Bank as it prepares to bolt on a much bigger borrowing programme in response to the coronavirus pandemic.
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Cassa Depositi e Prestiti pulled off a €1bn dual tranche Covid-19 response bond on Wednesday, capitalising on investors’ desire to deploy cash into coronavirus instruments to ride out a difficult market.
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The Italian Treasury has updated the guidelines for its debt management strategy for 2020 as it comes to terms with additional financing needs from Covid-19. There are plans for more syndications, bigger auctions and more products for retail investors.
