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Italy frontloads 2013 refinancing with new 15-yr bond sale
January 15, 2013 / 7:11 PM / 5 years ago

Italy frontloads 2013 refinancing with new 15-yr bond sale

* Italy raises 6 bln euros with 15-yr bond sale

* Treasury has met nearly 10 pct of 2013 borrowing target

* Rome is frontloading its refinancing ahead of elections

By Francesca Landini

MILAN, Jan 15 (Reuters) - Rome sold 6 billion euros of its first 15-year bond in more than two years on Tuesday, bringing the total amount it has raised since the start of the year to nearly 10 percent of its 2013 funding needs.

The treasury is taking advantage of a steep fall in Italian borrowing costs to frontload its debt refinancing ahead of a general election next month which could raise fears of political instability and fuel market volatility.

Tuesday’s bond had initially been expected to reap between 3 to 5 billion euros but buoyant demand allowed the treasury to increase the size of its offering.

The bond carried a premium of 30 basis points over the BTP maturing in March 2026, equal to a yield of 4.805 percent.

The successful sale of the new 15-year bond comes after two strong auctions settled in early January raised 34 billion euros.

That allowed Italy to bag 40 billion euros in its coffers against a total estimated target for 2013 of 420 billion euros.

“The issuance of a new 15-year benchmark represents a very positive signal in terms of the normalisation of financial markets and will also help the treasury achieve one of its main 2013 funding strategy goals: the lengthening of average debt maturity,” said Chiara Cremonesi, fixed-income strategist at Unicredit.

Investors have so far shrugged off concerns about the Feb. 24-25 election to snap up Italian bonds, whose yields have fallen sharply in the past three weeks but remain attractive compared with the very low returns on core euro zone paper.

The yield on the German 15-year maturity is around 2 percent. Italy had last issued a benchmark on this maturity in September 2010.

“The treasury is taking advantage of very positive market conditions to frontload its funding before the elections,” said Luca Mezzomo, head of macroeconomic research at Intesa Sanpaolo.

He said investors who had missed out on a bond market rally after the European Central Bank promised to buy the debt of vulnerable euro zone countries last September were now using all windows of opportunity to build positions on peripheral debt.

Last July, before the ECB pledge, Italy’s 15-year borrowing costs stood at 7.1 percent. On Friday, ahead of the treasury’s announcement on the launch of a new benchmark, the yield on the March 2026 BTP hovered around 4.7 percent.

The issue came through a syndicated sale managed by Banca IMI SpA, Barclays Bank PLC, Credit Agricole Corp, Goldman Sachs and JP Morgan Securities PLC.

The rationale for opening long positions on the new 15-year bond is the expectation that the risk premium on the long-end of the Italian yield curve will fall, analysts said. (Additional reporting by Gabriella Bruschi; editing by Ron Askew)

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