Spanish Sovereign

Italy opted for a privately placed deal to kick off its non-auction funding for 2014, printing a €250m 30 year inflation linked bond. Meanwhile, Spain mandated banks to sell its first syndication of the year — an April 2024 bond.

A remarkable rally in eurozone periphery debt since the turn of the year was in sharp focus again on Thursday, as Spain wiped nearly 60bp from its three year funding costs at an auction.

The peripheral European juggernaut moved up a gear on Thursday, as Portugal drew more than €11bn of orders to its first syndication of the year and Spain slashed its borrowing costs at auction.

Ireland blazed a path for its eurozone periphery peers on Tuesday, as a book in excess of €14bn let it price a bond inside its curve and helped tighten spreads across the peer group — potentially convincing more sovereigns to come this week.

A 10 year euro benchmark for Ireland — the first from a peripheral sovereign, or any sovereign, this year — should be a riot if the spread tightening in Europe’s periphery over the last few trading sessions is anything to go by. More peripheral names are expected to follow if Ireland’s deal is well received.

Comments made by a senior European Central Bank official on Wednesday could have a negative impact on peripheral Eurozone borrowers’ funding costs next year, according to syndicate officials.

Rising money market rates helped push up Spain’s six month and 12 month borrowing costs at auction on Tuesday, with Italy likely to suffer a similar fate when it sells one year debt on Wednesday.

Spain sprinted over the finish line of its 2013 funding task in an auction on Thursday, raising more than €3.5bn and wiping 15bp from its five year funding costs. The sovereign has one more auction scheduled for this year, which could be used for 2014 prefunding.

The end of November finds almost every sovereign in the scorecard more than 90% funded for the year. Italy's cause was helped in no small part by a bumper €22.3bn domestic inflation linked bond at the start of the month. The UK - with a funding year running from April March - is also well on track with 70% of its programme completed.

Dollar deals could be on the table for peripheral eurozone sovereigns in the new year, SSA syndicate bankers said this week, as some of the issuers enjoyed a strong showing at auction during the week.

Spain’s 12 month yields fell to the lowest level since at least early 2011 at auction on Tuesday, setting the sovereign up well for a sale of longer dated debt later in the week.

Italy and Spain were two of the biggest beneficiaries after the European Central Bank cut interest rates on Thursday. The sovereigns’ yields fell in secondaries — strongly positioning them to close out their funding for the rest of the year — and providing a further fillip at the end of a strong week of issuance.