Italian Sovereign

Italian government bond yields hit multi-month lows following an agreement with the European Commission over the country's 2019 budget deficit target on Wednesday, ending a long and drawn out stand-off that had spooked BTP investors.

The European Central Bank set the alarm bells ringing for a fresh bout of volatility in the Italian government bond market on Thursday as it outlined its strategy for the reinvestments of its maturing bonds under the Public Sector Purchase Programme (PSPP). Burhan Khadbai reports.

France looks set to be in breach of European Union budget rules after president Emmanuel Macron promised a set of concessionary measures in an effort to quell the violent protests of the last few weeks. While, by the absolute letter of the law, France’s breach will not be as bad as Italy’s, such a situation will hardly do much to stem the rise of populism or boost the credibility of the EU.

Italy is planning to syndicate bonds in the long end of the curve next year through inflation-linked and conventional formats.

Italy is preparing to make its highly anticipated return to the dollar market next year. The sovereign had planned to issue a dollar syndication in 2018, as first revealed by GlobalCapital, but postponed due to the volatility in the Italian bond market.

Rating: Baa3/BBB/BBB

Italy found strong demand for a surprise syndicated tap on Thursday — despite a fresh and steep sell-off across its curve throughout the day — proving the peripheral sovereign had access to the capital markets even during extremely difficult conditions.

Italy carried out a syndicated buyback alongside a reopening of its October 2021 issue on Thursday, despite a steep sell-off in the sovereign’s curve throughout the day.

Speculation is rife in the government bond markets that the European Central Bank will deploy special monetary policy to support Italian BTPs. Aside from being a ridiculous idea — Italy has got itself into this mess with its own budget proposals, not because it is in a financial crisis — such support brings with it yet more rules that Italy would have to abide by in order to receive the help.

Italy’s 10 year yield dropped to its lowest level in almost two months this week, after the country’s top government officials suggested they could target a budget deficit as low as 2% in 2019.

Populist parties such as Italy’s Five Star Movement are winning elections on platforms of transparency, reducing waste and removing corruption. But the biggest waste of money in Italy this year has been the party’s futile budget standoff.

There was little appetite for Italian inflation-linked debt this week, as Italy issued just over €2bn for its first BTP Italia sale since the sovereign’s bonds began selling off in May.