It was surprising timing for Italy to announce a 20-year syndicated bond just as Spain was bringing a 6 billion euro ($6.8 billion) 10-year issue on the same day. This is doubly true when you consider that both Germany and Portugal have regular 10-year auctions as well on Wednesday – more so when Italy itself has a scheduled sale of 15-year bonds on Thursday.
But even though there are hints that Rome’s move was far from well-planned, it doesn’t seem to have done it any harm. In bond land at the moment, it’s definitely a case of “come on in, the water’s lovely.”
Indeed, that Italy and Spain both came at the same time with syndicated issues (where a group of banks drums up demand from investors) – and the process went smoothly – shows just how strong appetite is for long-dated paper. Demand for Spain’s offer topped 30 billion euros on its capped 6 billion euro deal. The order books for Italy were slightly more modest at 24 billion euros but still spectacular given the political turmoil in the country and its budget standoff with Brussels. Indeed, it may bring in more money than the Spanish sale.
The global hunt for yield dominates everything right now. While Italy’s yields have lagged behind its European peers, they’re still close to their lowest point for a year.
It helps that there’s a wall of money coming from 40 billion euros of bond redemptions and coupon payments this week and next from Germany, Portugal, Austria and Ireland. A further 30 billion euro slug from maturing notes is due in early July. So there’s plenty of cash swilling around and strong demand. This is coming not just from the usual suspects in yield-starved Japan, but also from Dutch pension funds, which are wrestling with upcoming regulatory changes that will increase their sensitivity to rates on ultra-long bond maturities. German insurers have also been active buyers of very long-dated paper.
All of the big sovereign issuers in Europe are more than halfway to completing their fund-raising schedule this year. While Germany is the laggard, that’s hardly a concern as it just sold 10-year debt at a record low yield of minus 24 basis points.
More important is that the healthy demand for longer duration notes takes the pressure off countries’ short-term funding – something that will be very welcome in Rome. This is Italy’s third long-dated syndicated deal this year, although it won’t beat the record 41 billion order book it attracted in February for an 8 billion euro 2049 bond. Brussels and Rome may be at loggerheads but investors don’t care if there’s yield to be had.
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Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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