Italian Sovereign

Italy had the perfect preparation for an auction of long dated debt later in the week, printing six month bills at near record low yields and retracing most of the losses it made during a sell-off in secondary over the last two weeks.

Eurozone periphery sovereign bonds enjoyed a strong start to the week, retracing much of their losses from a sell-off over the past two weeks — boding well for upcoming supply from Italy. The sovereign tested investor demand with an auction on Tuesday morning, where yields held steady from the previous sale of the tenor.

Read on to see how selected benchmarks are faring in secondary. Trading levels given are bid-side spreads versus mid-swaps and/or an underlying benchmark as of Thursday's close. The source for secondary trading levels is Interactive Data.

Cyprus is mulling a return to syndications this year after investors called the sovereign’s debt office with enquiries following a private placement last month — but any deal will probably have to wait, as eurozone periphery yields rose on Monday, adding to a large sell-off late last week.

Eurozone periphery sovereigns’ spreads over Germany widened on Thursday afternoon, putting at least a temporary break on a big rally by the countries’ debt this week. The turbulence came after a steady bill auction by Ireland in the morning.

Italy showcased the strength of the bid for eurozone periphery paper on Wednesday as it pulled more than €20bn of orders to a new 15 year benchmark a day after Spain drew a similar sized book for a debut inflation linker and Italy auctioned €7.25bn of bonds.

Italy is set to join its peripheral eurozone peer Spain in the market this week, after mandating banks for a new 15 year euro benchmark.

Spain has circulated initial price thoughts for a debut inflation linked bond — expected to come on Tuesday. Elsewhere, bankers expect Italy could come with a new benchmark later this month and Portugal moved a step closer to regaining investment grade status.

This week's scorecard covers the funding progress of sovereign issuers, with Belgium, Ireland, Netherlands and Portugal all over the halfway mark on their programmes for the year. Next week's scorecard will deal with European supranationals and agencies.

Italy’s 10 year borrowing costs fell to their lowest level since the introduction of the euro on Tuesday, outstripping a record set in the pre-eurozone sovereign debt crisis days of September 2005.

Italy will drive down its medium to long term funding costs to euro-era lows at an auction on Tuesday, said analysts, despite the sovereign’s short term yields rising at an auction on Monday.

Spain stamped down its funding costs by 20bp-30bp as it slightly overshot its maximum €5.5bn target at an auction on Thursday. The drop in yields was evidence of a recent strong run for eurozone peripheral sovereigns’ debt, which some analysts believe is the result of investors’ expectation that the European Central Bank could soon start quantitative easing. Elsewhere, Italy kept yields near euro-era lows at an auction of two year zero coupon paper and outlined its auction business for next week.