November 14, 2011 / 10:47 AM / 8 years ago

Instant view: Italy sells 3 billion euros of bonds

LONDON (Reuters) - Italy sold 3 billion euros of five-year government bonds on Monday, with the gross yield rising to 6.29 percent from 5.32 percent a month ago.

Bids were 1.469 times the amount on offer.

Italian secondary market bond yields were lower across the curve after the weekend appointment of former European Commissioner Mario Monti to head a new government.

DAVID SCHNAUTZ, STRATEGIST, COMMERZBANK, LONDON

“Given the tiny amounts, the bare minimum Italy is selling these days to get the upper end of that tiny range is encouraging. (Yields) are still clearly eye-watering...This can only be done for quite a limited time-span.”

“Looking at what Bunds and Treasuries did since opening we have clear renewed flight to quality to some extent...You have a better political situation in Italy but at the end of the day it’s still a tiny amount. Its hard to say this is a vote of confidence by the bond market.”

ANNALISA PIAZZA, RATE STRATEGIST, NEWEDGE, LONDON

“The relative small amount on tap for a mid-month BTP auction, coupled with record high levels for Italian five-year yields, have supported the decent demand at today’s auction. Bid/cover was not spectacular though, despite the cheapness of the paper.

“Dealers remain cautious on the developments in Italy. The new appointed PM (Mario Monti) is perceived to be a positive change for the country...Cautiousness on the future developments in Italy is fully justified. Credibility has been lost and it will take a while for market participants to believe that the country is back on the right track.”

MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON

“It’s been sold about 13 basis points below the market level, which is reasonably encouraging. The cover is OK, it’s not fantastic. There was always going to be good domestic support particularly with it being a five-year maturity. There is a lot of natural demand from the banking sector for balance sheet purposes.”

PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE CIB, LONDON

“It’s a decent bond auction. They sold the full amount and it came well through the secondary market and low yield level of this morning, so there’s been decent paying up to pick this bond up.

“The micro-view is supportive but there’s no getting away from the long-term view that this is a significant rise in yields for an Italian five-year auction.”

MARKET REACTION:

- Bund future up 44 ticks at 137.70 vs 137.91 before auction

- Italian/German Bund 10-year spread 463 bps vs 460 bps before auction

Italian BTP future up 0.52 at 94.18 vs 94.03 before auction.

BACKGROUND:

- Italy’s president appointed former European Commissioner Mario Monti on Sunday to head a new government charged with implementing urgent economic reforms to tackle a debt crisis that has endangered the whole of the euro zone.

- 10-year BTP yields rose to euro era highs of 7.5 percent last week, above the 7 percent level perceived to be economically unsustainable. The European Central Bank has been buying Italian bonds in an attempt to stem rising yields.

- Average bid to cover at five-year BTP auctions this year was 1.43 while average gross yields were 4.37 percent, according to Reuters data.

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