Italian Sovereign

Italy and the European Union will reboot the euro public sector bond market on Wednesday after announcing syndications of new 10 and 15 year bonds, respectively. The deals will come ahead of the European Central Bank’s meeting on Thursday, in which it is widely expected to increase the size of its Pandemic Emergency Purchase Programme (Pepp).

The European Commission has published its proposal for an EU recovery fund. Next Generation EU, as it has been dubbed, has impressed onlookers with promises of €500bn of grants and a further €250bn of loans for countries affected by the coronavirus pandemic.

Italy completed the sale a five year BTP Italia on Thursday for a record breaking size of €22.297bn to finance measures related to the Covid-19 pandemic. Demand for the product was boosted by the Franco-German EU recovery fund proposal.

Italy has announced the details of a new BTP Italia sale, which will take place from Monday May 18, and be aimed at financing measures in response to the Covid-19 pandemic.

Trading levels given are bid-side spreads versus mid-swaps and/or an underlying benchmark and bid-yields from the close of business on Monday, May 4. The source for secondary trading levels is ICE Data Services.

The European Central Bank’s press conference on Thursday did not provide the headline fireworks that its last meeting did. The sombre tone caused “disappointment” among investors and a slight widening of peripheral spreads. SSA issuers were also left dissatisfied with the bank’s lack of support for the money markets.

The European Commission’s plans for a recovery fund will not be enough to prevent Italy’s public finances suffering a severe fiscal deterioration said Fitch, after the ratings agency downgraded the sovereign on Tuesday night.

Italy was able to raise almost €6bn in auctions with ease on Wednesday following Tuesday night’s unexpected downgrade by Fitch, which leaves it just one notch above junk.

Fitch Ratings has lowered Italy’s credit rating one notch to BBB- on Tuesday night, making the move more than two months ahead of its scheduled review in July.

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.

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.