Tags: Italy | Generous | Yield | Bond

Italy Offers ‘Generous’ Yield on Sale of 15-Year Bond

Wednesday, 22 Sep 2010 01:34 PM

Italy is offering investors a “generous” relative yield to sell 15-year bonds as it becomes the latest peripheral European nation to issue debt.

“Italy’s sale is very important given it will be the biggest indicator of sentiment for long-dated bonds from the euro zone since Spain sold 10-year debt in July,” said Ciaran O’Hagan, a fixed-income strategist at Societe Generale SA in Paris. “The spread Italy is offering is sufficiently generous to attract very strong demand.”

The bonds, in euros and due March 2026, will be priced at 10 basis points more than Italy’s March 2025 notes, according to a person with knowledge of the sale, equivalent to a yield of about 4.5 percent. The government has received orders of about 9 billion euros ($12 billion) for the notes, said the person, who declined to be identified before the transaction is completed.

Italy’s first euro fixed-rate bond issue via a group of banks since September 2009 follows auctions of shorter-dated notes from Ireland, Greece and Spain yesterday and Portugal today. The deal comes after the Rome government approved 25 billion euros of spending cuts in July to trim the budget deficit after Greece’s near-default led investors to shirk bonds from Europe’s most indebted nations.

Debt Auctions

More recently, Italy added 2.4 billion euros to its March 2025 securities in an Aug. 8 auction with the notes priced at an average yield of 4.36 percent.

Portugal auctioned 750 million euros of bonds today. It issued 450 million euros of securities due October 2014 at an average yield of 4.695 percent, compared with an average 3.621 percent at a previous auction on July 28. The 300 million euros of June 2020 bonds were issued at an average yield of 6.242 percent, compared with 5.312 percent at an Aug. 25 sale. The nation initially sought to raise 1 billion euros from the debt sale.

“We saw respite in concern over sovereign debt in the euro zone yesterday,” said Orlando Green, assistant director of capital markets strategy at Credit Agricole Corporate & Investment Bank in London. “Sustainability is now the question.”

Credit-default swaps insuring Italian government debt rose 7 basis points to 198 according to data provider CMA, signaling a deterioration in investor perceptions of the nation’s credit quality.

Default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt for five years is equivalent to $1,000 a year.

Italy is rated Aa2, the third-highest investment grade rating, by Moody’s and one step lower at AA- by Standard & Poor’s.

Banca IMI SpA, Citigroup Global Markets Ltd., Deutsche Bank AG, Nomura Bank International PLC and Royal Bank of Scotland PLC are managing the new benchmark issue.

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Italy is offering investors a generous relative yield to sell 15-year bonds as it becomes the latest peripheral European nation to issue debt. Italy s sale is very important given it will be the biggest indicator of sentiment for long-dated bonds from the euro zone...
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2010-34-22
Wednesday, 22 Sep 2010 01:34 PM
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