January 11, 2019 / 12:23 PM / 8 months ago

UPDATE 2-Italian yields tumble at end of busy week for euro zone supply

* Italy yields fall after bond sales go well

* EZ govts issue over 35 bln euros in busiest week for 3 years

* Demand for EZ syndicated bond deals this week hits 70 bln euros

* Markets focused on Fed, U.S. shutdown, Brexit vote

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices, adds late move in bonds)

By Virginia Furness

LONDON, Jan 11 (Reuters) - Italian government bond yields fell sharply on Friday following the successful sale of 6.5 billion euros ($7.5 billion) of its debt, wrapping up the busiest week for euro zone bond issuance in three years.

Euro zone governments have issued over 35 billion euros of bonds via auction and syndications this week, which is the highest weekly volume in three years, according to Commerzbank.

Italy sold three-, seven and 30-year bonds at the top end of its planned range.

The successful sale helps to alleviate concerns that the sovereign may face difficulties raising the 250 billion euros for its 2019 funding programme without the European Central Bank backstop.

It also comes amid a bumper week for bonds which saw high levels of over-subscription for those bonds sold via a syndicate of banks, as well as attractive funding costs for governments.

“We had an extremely volatile and difficult end to 2018, and so many investors had cash on their hands and were looking for a relatively safe place to put their cash,” said a syndicate banker who worked on some of the week’s bond sales.

“There have been very few opportunities to buy relatively safe assets so investors jumped at these syndications,” he added, referring to deals by the likes of Belgium, Ireland and Portugal.

Issuers were keen to secure funding ahead of next week’s parliament vote on Britain’s deal to leave the European Union, and to take advantage of the calmer markets following soothing comments by U.S. Federal Reserve Chairman Jerome Powell this week and last, according to a London-based syndicate banker.

Belgium, Ireland and Portugal all completed syndications this week, receiving record combined demand of 70 billion euros. Germany also held an auction.

In Italy, bond yields extended their falls after the auction with five-year yields falling to a one-week low at 1.80 percent . Ten-year bond yields were last down 3 bps at 2.86 percent.


Elsewhere, euro zone bond yields fell after Fed chief Powell on Thursday stressed that the U.S. central bank can be patient in approving any further rate increases, as officials gauge whether the U.S. economy will slow this year.

“If they (the Fed) do pause, it rationalises the fact that hikes have been priced out and keeps rates lower,” said Martin van Vliet, ING senior rates strategist.

Weak stocks and data showing U.S. consumer prices dipped in December added to the downward pull on bond yields later in the session.

Germany’s 10-year bond yield fell 3 bps to a one-week low at 0.167 percent - close to more than two-year lows hit last week. Other core euro zone bond yields were 2-3 bps lower .

Elsewhere, Fitch will publish its review of Spain’s credit rating after the market close, though analysts do not expect any change to its A- rating, and DBRS will publish its rating review on Italy. ($1 = 0.8715 euros)

Reporting by Virginia Furness; additional reporting by Abhinav Ramnarayan and Dhara Ranasinghe Editing by Jon Boyle and Susan Fenton

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