Italy attracts strong demand for first new bond of the year

Italy’s first major bond issue of the year has attracted more than €30bn (£26.7bn) of orders as investors showed renewed appetite for long-dated Italian debt.

The new 15-year bond, due March 2035, sold through a syndicate of banks is expected to be priced at 18 basis points over its existing benchmark yield, according to Refinitiv.

It comes after Rome’s long-running row with the EU over its controversial budget finally came to an end last month, a dispute with spooked investors.

In the second half of last year Italian borrowing costs rose to four-year highs amid the face-off between the Rome and Brussels.

The premium demanded by investors to lend to Italy over Germany – widely perceived as a barometer of political risk – also hit five-year highs.

Sentiment improved when Italy agreed to cut its deficit target for 2019 in a bid to avoid EU disciplinary action.

But the Italian government, buoyed by strong demand for issues from Portugal, Belgium and Ireland last week and the resolution of its budget dispute, braved the bond market and were rewarded with strong demand.

“The deal looks reasonably cheap and I think it is going to go well,” John Taylor, fixed income portfolio manager at Alliance Bernstein said.

“Though all is not well for Italy in the medium term, we think there is some potential for spread tightening over the next six months and the spread over peers is pretty compelling in the meantime,” he added.

Italy’s benchmark 10-year bond was yielding 2.74 per cent more than its German equivalent today, significantly lower than the highs of 3.4 per cent in October.

The Italian government said Barclays, Citi, HSBC, JP Morgan and UniCredit were joint managers of the deal.