January 15, 2013 7:56 pm

Italy raises €6bn with long-dated bonds

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Italy raised €6bn in a rare sale of long-dated bonds on Tuesday, helping Rome chip away at the repayments and coupon due on its €2tn pile of government debt this year.

The bond was priced to yield 4.8 per cent and matures in September 2028. It is the longest dated conventional bond Italy has issued in more than two years. The Rome-based Treasury sold a 15-year inflation-linked bond in June 2011.

The eurozone debt crisis has forced the continent’s peripheral economies to issue more shorter-term, lower yielding bills and bonds to ameliorate the rising cost of borrowing caused by concerns over their creditworthiness.

However, the European Central Bank’s promise to intervene in the bond market of embattled euro area members that request aid has calmed fears over the currency bloc’s future, and sent the borrowing costs of the periphery tumbling.

“We are pleased that tail-risks have been removed and this has led to an improvement in financial market conditions and the beginning of a stabilisation and return of confidence,” Mario Draghi, ECB president, said at the central bank’s last meeting. “I believe there is a positive contagion when things go well.”

Italy has been one of the main beneficiaries of this “positive contagion”. Rome’s benchmark 10-year borrowing costs last week dipped to a two and-a-half year low of 4.13 per cent, and the local stock market is the best performing major bourse in the world this year, notching up a gain of 7.3 per cent.

Tuesday’s deal, a syndication rather than an auction run by the Italian Treasury, was managed by Credit Agricole, Banca IMI, Barclays, Goldman Sachs, and JPMorgan. The orderbook reached €11bn, including €3bn of bids by the banks on the deal.

“It’s a very positive signal being able to raise 15-year money, but it’s no surprise given the more positive sentiment,” a banker away from the deal said.

Nonetheless, some analysts and fund managers fear the crisis could flare up again.

Spain is the biggest concern, and is the country most likely to seek aid from the eurozone’s rescue funds and the ECB if its wilting economy scares away lenders. But Italy faces pivotal elections this year that could potentially spook investors if Mario Monti, the respected technocrat premier, is removed.

That could make it harder for Italy to raise the €400bn plus it needs to finance the budget and repay debts due this year - and be a spark for renewed turmoil across the eurozone.

“Economic conditions [in Europe] are also unfavourable while upcoming elections in Italy could prove disruptive to policymakers’ efforts to reverse the debt crisis,” Luca Paolini, chief strategist at Pictet Asset Management, warned in a note.

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