UPDATE 2-Italy, Spain capitalise on receptive bond market
(Adds deal update, strategist quote)
By John Geddie
LONDON, Oct 9 (IFR) - Italy and Spain are set to issue 9 billion euros of bonds on Wednesday, taking advantage of a receptive market after political tensions in Rome subsided and avoiding market risk linked to the looming threat of a U.S. default.
Italy is set to price its first ever new conventional seven-year bond while Spain will launch a 2044 bond that will serve as its first 30-year benchmark in over four years, adding to an impressive turnaround for Europe's fragile periphery.
The deals had been well telegraphed, but the timing could prove crucial with Washington still in lockdown as the October 17 deadline for raising the U.S. debt ceiling approaches fast.
"At the moment we have fairly favourable market conditions for peripheral issuers given the political turbulence in Italy having calmed down significantly, while the situation in the US and its ramifications for the market's risk perception could hold the potential to become more acute in the coming weeks," said Norbert Aul, European Rates Strategist at RBC.
Just last week, Italy's fragile coalition government looked to be on the brink of collapse and its borrowing costs spiked ahead of a confidence vote in parliament.
With that vote successfully passed, Italy is now on course to raise nearly 20 billion euros on bond markets over the next three days, including the seven-year deal.
Buoyed by orders worth 21 billion euros placed for the European Stability Mechanism's inaugural bond issue on Tuesday, Italy mandated banks to launch the seven-year maturity.
The deal - Italy's first ever in this maturity - had been flagged to the market by the Treasury last month.
Interest was strong, and when books opened on Wednesday morning orders were already in excess of 3.5 billion euros. Books closed in the afternoon with nearly 11 billion euros of orders, lead managers said.
The Treasury said it was set to price a 5 billion euro bond at a 10bp pick-up to its outstanding 3.75 percent March 2021 BTP.
Italy also plans to issue 8.5 billion euros of one-year treasury bills, on Thursday, and up to up to 6 billion euros of BTPs at mid-month auction on Friday.
Meanwhile Spain - which stood on the verge of a bailout in July 2012 - is set to price a 4 billion euro 30-year benchmark bond for the first time since September 2009.
Madrid's borrowing costs hit record highs in July 2012, with its 10-year yields reaching 7.3 percent as concerns mounted about its ailing banking sector.
On Wednesday it was set to price a new bond maturing in October 2044, marking the longest point on its curve.
Nearly 11 billion euros of orders have been placed for the bond, lead managers said, with the final spread set at mid-swaps plus 250bp, equivalent to a yield of around 5.2 percent at current market rates. (Reporting by John Geddie; Editing by John Stonestreet)
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