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Italy Racks Up Orders for 50-Year Bonds as Yield Hunters Rush In

Anooja Debnath and John Ainger
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Italy Racks Up Orders for 50-Year Bonds as Yield Hunters Rush In

(Bloomberg) -- Italy is locking in lower borrowing costs, the latest European country to take advantage of plunging bond yields.The nation received nearly 17 billion euros ($19.1 billion) in orders at an offering of 3 billion euros of an existing 50-year security. It also plans to issue three- and seven-year notes this week, after yields fell to the lowest since before the populist coalition came to power in June 2018.Bond yields have dropped to record lows across Europe on expectations of further stimulus from the European Central Bank. While Italian bonds lagged behind the rally in the first half of the year, they have been the best performers this month after Rome avoided punishment from the European Commission over its budget deficit and as investors sought exposure to some of the highest yields still on offer in Europe.“The announcement perfectly encapsulates the yield grab that has been galvanized by the recent dovish shift on the part of the Fed and the ECB,” Rabobank International strategists led by Richard McGuire wrote in a note to clients. “The decision to tap the 50-year is reflective of investor appetite for both risk and duration.”Italy has mandated banks including Citigroup Inc., Goldman Sachs Group Inc. and UniCredit SpA for selling debt maturing in 2067 with a coupon of 2.80%, according to a statement. The initial price guidance was revised lower to 11 basis points over the 30-year yield, which is currently at 2.76%. The security was last tapped in January 2018 for 880 million euros.Benchmark Italian 10-year yields are at 1.73%, with the premium over German bunds, a key gauge of risk sentiment, at 209 basis points. The spread touched 194 basis points last week, the lowest level in over a year.Both Spain and France auctioned debt at record-low borrowing costs on Thursday. Investors are turning to peripheral euro-area bonds as the yields on German bunds are hovering around the European Central Bank’s -0.4% deposit rate.“In a world where the outstanding pool of positively-yielding European government debt for fund managers to invest in is shrinking all the time, this is where the price goes,” said Kit Juckes, a strategist at Societe Generale SA. “I think yields are more likely to fall further than rise from here.”(Adds orderbook size in second paragraph.)\--With assistance from Paul Cohen.To contact the reporters on this story: Anooja Debnath in London at adebnath@bloomberg.net;John Ainger in London at jainger@bloomberg.netTo contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Anil VarmaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- Italy is locking in lower borrowing costs, the latest European country to take advantage of plunging bond yields.

The nation received nearly 17 billion euros ($19.1 billion) in orders at an offering of 3 billion euros of an existing 50-year security. It also plans to issue three- and seven-year notes this week, after yields fell to the lowest since before the populist coalition came to power in June 2018.

Bond yields have dropped to record lows across Europe on expectations of further stimulus from the European Central Bank. While Italian bonds lagged behind the rally in the first half of the year, they have been the best performers this month after Rome avoided punishment from the European Commission over its budget deficit and as investors sought exposure to some of the highest yields still on offer in Europe.

“The announcement perfectly encapsulates the yield grab that has been galvanized by the recent dovish shift on the part of the Fed and the ECB,” Rabobank International strategists led by Richard McGuire wrote in a note to clients. “The decision to tap the 50-year is reflective of investor appetite for both risk and duration.”

Italy has mandated banks including Citigroup Inc., Goldman Sachs Group Inc. and UniCredit SpA for selling debt maturing in 2067 with a coupon of 2.80%, according to a statement. The initial price guidance was revised lower to 11 basis points over the 30-year yield, which is currently at 2.76%. The security was last tapped in January 2018 for 880 million euros.

Benchmark Italian 10-year yields are at 1.73%, with the premium over German bunds, a key gauge of risk sentiment, at 209 basis points. The spread touched 194 basis points last week, the lowest level in over a year.

Both Spain and France auctioned debt at record-low borrowing costs on Thursday. Investors are turning to peripheral euro-area bonds as the yields on German bunds are hovering around the European Central Bank’s -0.4% deposit rate.

“In a world where the outstanding pool of positively-yielding European government debt for fund managers to invest in is shrinking all the time, this is where the price goes,” said Kit Juckes, a strategist at Societe Generale SA. “I think yields are more likely to fall further than rise from here.”

(Adds orderbook size in second paragraph.)

--With assistance from Paul Cohen.

To contact the reporters on this story: Anooja Debnath in London at adebnath@bloomberg.net;John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Anil Varma

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.