Italian Sovereign

The contrasting fortunes of the two largest peripheral eurozone sovereigns were sharply highlighted on Wednesday morning, as the Republic of Italy struggled to find demand at a debt sale while the Kingdom of Spain looked forward to an unscheduled auction of ultra long securities.

The Republic of Italy paid inflated yields on Tuesday at its first debt auction since being downgraded by Fitch Ratings last week, and could well have to cough up on Wednesday when it attempts to sell longer dated debt, said analysts.

Despite the speed at which the market bounced back from shambolic Italian elections last week, it is not back to full heath.

Spain’s five year and 10 year borrowing costs fell to their lowest levels since 2010 at an auction on Thursday morning, confirming that Italy’s political shenanigans are having little effect on the wider peripheral market.

The Republic of Italy passed the first test of its new political environment on Wednesday, placing its maximum target of €6.5bn at an auction that included the launch of a new 10 year line.

The Republic of Italy’s borrowing costs shot up at a bills auction on Tuesday as it became clear that Italy’s government elections would produce an inconclusive result, which caused peripheral government bond markets to spin wider. A bigger test of demand, however, will be on Wednesday when Italy will auction five and 10 year bonds.

Volatility reigned supreme on Monday as projections based on early voting results from the Republic of Italy’s general election played havoc with Italian bond yields.

The Republic of Italy found solid demand for its long dated debt at an auction on Wednesday, auguring well for an expected new 30 year syndication, according to analysts.

The Republic of Italy is expected to auction debt at heightened yields on Wednesday, but is unlikely to have a problem finding demand — mirroring an auction for the Kingdom of Spain last week, according to analysts.

Italian yields plunged across the maturity curve at auctions this week and other peripheral eurozone issuers are expected to record similar results in early February, analysts said on Wednesday.

The snow is falling in London but the chill over the eurozone periphery has lifted. Italy and Ireland have both returned with deals, a Spanish syndication could be imminent and there is even chatter of Portugal plotting a comeback.

The triumphant return of Italy to the syndicated market with a 15 year conventional bond and a successful bills auction by the Kingdom of Spain [see separate story] has given another massive boost of confidence to peripheral Europe, already buoyed by Ireland’s €2.5bn tap issued last week.