Italian Sovereign

Rating: Baa2/BBB-/BBB+

An increase in swap spreads at the short end of the curve drove public sector issuers to focus their attention on shorter maturities in the dollar market this week.

Italy enticed investors out the curve on Tuesday with its first ever 20 year euro benchmark, offering a pick-up of around 40bp over where its 15 year benchmark — a more traditional pricing point for the sovereign — was trading in secondaries.

Portugal brought a dual tranche syndicated tap this week, in what some bankers felt was a disappointment amid a busy market where every other deal went well — but the leads were quick to defend the trade.

Investors holding Italian Treasury certificates will not be required to pay the Italian sovereign if the instruments’ floating rate coupons turn negative — an increasingly likely possibility for an older format of the paper.

World Bank tapped Italian retail investors for $165m this week, issuing a 10 year sustainable development bond.

Portugal cut its funding costs at a bond auction and Italy lined up for a sale on Wednesday, as European Central Bank support protected eurozone periphery government bonds from any knock-on effects from a terrorist attack in Brussels on Tuesday.

Eurozone periphery sovereigns are stamping down their borrowing costs at auctions amid a wave of dovish central bank actions — but one sub-sovereign in the region stands alone in suffering a sharp rise in its yields.

Italy will bring the next line of its domestic inflation linked BTP Italia product in three weeks, sticking with a similar process to its last issue.

Delve into the details of their respective economic and political prospects, and Italy’s investor credentials are seemingly more favourable than Spain’s, writes Jeremy Weltman.

Spain's spread over Italian bonds could widen further as investors fret over its finances while responding positively to the reforms led by Italy prime minister Matteo Renzi, despite Spain shrugging off a move from positive to stable outlook from Moody's late last week.

European credit markets, led by the banking sector, have seen risk escalate over the past several weeks with the Markit iTraxx Europe Main index seeing its spread widen to the highs of June 2013. One bright spot however, has been the region’s sovereign credit, which has largely steered clear of the contagion that developed in the corporate market.