Italy has sold €5.25bn of fresh debt at yields that are well below its last bond auction, as the budget wrangling among the country’s ruling populist coalition government reaches a crescendo.
Investors have bought €2bn of five-year debt, €2bn of 10-year debt and €1.25bn of seven-year inflation-linked debt, the maximum that Italy had planned to raise.
The five-year bond priced at a yield of 2.03 per cent, 40 basis points lower than Italy’s last five-year debt sale in late August and the best pricing since July. The 10-year paper priced at 2.9 per cent, 35 basis points below the previous sale.
The seven-year inflation-linked paper priced at a yield of 1.77 per cent, 53 basis points below the previous similar sale.
The sales attracted steady investor appetite: the five-year auction was 1.42 times oversubscribed, the 10-year auction was 1.44 times oversubscribed and the seven-year auction was 1.67 times oversubscribed, according to Reuters.
The auctions came on a day when Italy’s coalition government i s making a last-minute push to ensure its expensive election promises are included in spending targets that risk increasing the country’s budget deficit beyond the comfort level of Brussels and financial markets.
Italian bond yields spiked in early trading on Thursday after rumours that the budget announcement could be delayed amid wrangling over the level of the country’s deficit.
The yield on 10-year debt hit 2.993 per cent, its highest level for two weeks, before retrenching when Luigi Di Maio, Italian deputy prime minister and leader of the country’s anti-establishment Five Star party, denied that he would call for the resignation of technocratic economy minister Giovanni Tria, and confirmed that the cabinet meeting would go ahead as expected later on Thursday.
Chiara Cremonesi, a fixed-income strategist at UniCredit, said that the outlook for supply volumes in future Italian debt sales was broadly “smooth”.
“On average Italy will have to issue €17bn in October and November, versus a monthly average of €20bn in the year to date,” she said. “Net supply will be sharply negative: with €35bn of issuance expected until year-end, redemptions in October to December will amount to €54bn [and] we expect quantitative easing to absorb additional €1.8-2bn per month.”
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