The main factor that is hauling the 50 year tenor into the realm of traditional euro benchmarks — quantitative easing — is not going anywhere in the short term.
But what could rapidly disappear are the favourable conditions that are comforting investors heading out into hitherto uncharted parts of the eurozone periphery maturity curve.
Much has been made of the political risks lining up in June, all of which are external to, but could affect Italy: the UK referendum on EU membership, Greek debt negotiations and a Spanish general election.
But much closer to home, although not until October, the Italian people will vote in a referendum on reforming the Italian Senate. The country’s prime minister Matteo Renzi has said that, if the vote is lost, he will resign.
A Renzi exit would be a hammer blow to Italy’s funding prospects.The young politician has delighted many in Brussels and the markets with his ability to push through much needed reform, and the country has benefitted from a period of political stability during his tenure that would have been unthinkable in the era of former prime minister and market nemesis Silvio Berlusconi.
Since the start of the year, there has been a roughly equal number of polls showing a ‘yes’ vote is ahead as there have been those suggesting ‘no’ will win.
Other polls are also causing concern. The Five Star Movement — an anti-establishment party that shocked the Italian political landscape when it drew a much higher share of the vote than polls predicted at the 2013 general election — is, according to some opinion polls, in second place behind Renzi’s party by just a few percentage points. That is also of concern, with the next Italian general election possibly happening in 2017.
If there is one thing the last few years have shown, it is that strong, supportive markets can quickly turn at the slightest sign of political trouble.
With such domestic concerns, not to mention the ability of a breakdown in Greek negotiations or a Brexit to shut down markets indefinitely, Italy could find that yield starved investors might not be willing to stomach such long dated debt in the very near future. Even a few negative polls could send yields sliding wider if it looks like such a nightmare scenario is coming.
Of course, nobody wants to lock in basis points for 50 years that they could have saved by waiting a few weeks. But that is always the risk with long dated funding.
If Italy wants 50 year cash, it would be well advised to take it while it’s on the table.