Italy

The cost of insuring against default on Italian bank bonds has fallen to its lowest point in over a year, after investors embraced the result of recent regional elections in the country.

Banca Monte dei Paschi di Siena wrapped up its second deal of the month on Tuesday, capping off a busy period for Italian deal flow in advance of important regional elections.

Investors have been showing a clear preference for subordinated bank bonds in the primary market, with the valuations for more senior asset classes having been squeezed into extraordinarily tight levels in 2020.

Banca Monte dei Paschi di Siena was marketing a new senior bond in the euro market on Tuesday, a matter of days after it completed its capital raising plan with a tier two sold at 8%.

Rating: Baa1/A/A-

A triple-A rated supranational and two sovereigns from the eurozone periphery took the opportunity to lock in low rates at the long end this week, amid strong market conditions. SSA bankers expect more supply to follow at this part of the curve over the coming weeks, including from France and potentially Greece.

Italian banks took over the financial institutions bond market this week, enjoying a much lower cost of funding and capital than they have been accustomed to in recent years. The sector will look to make good use of favourable issuance windows in 2020, as it moves inch by inch towards a more positive outlook.

The stars have aligned for Banca Monte dei Paschi di Siena following its rescue by the Italian state. It is hard to see how other banks could be so fortunate.

Mediobanca was greeted with €4bn of demand for its debut offering of non-preferred senior notes on Thursday, extending a run of Italian bond deals in the euro market this week.

Italy and Belgium were the latest eurozone sovereigns to build their largest ever order books for syndicated bonds on Wednesday, with the former coming close to breaking the record demand from a eurozone issuer set by Spain on Tuesday.

Banca Monte dei Paschi di Siena was more than two times subscribed for a €400m tier two on Wednesday, as the state-backed Italian lender used strong market conditions to finally complete the last leg of its capital raising plan.

Spain and Cyprus attracted strong demand for their syndicated bonds on Tuesday, with the former receiving the largest ever order book for a public sector euro benchmark. Italy and Belgium will add to the eurozone sovereign supply on Wednesday after mandating leads for new 30 and 10 year trades, respectively.