Italian yields advance further as 30-year BTP sale massively oversubscribed

Italian yields rose to a two-week high on Thursday after Italy launched an 8 billion euro ($9.5 billion) government bond due to mature in 30 years for which investors offered an overwhelming 90 billion euros.

Italian yields rose to a two-week high on Thursday after Italy launched an 8 billion euro ($9.5 billion) government bond due to mature in 30 years for which investors offered an overwhelming 90 billion euros. The announcement that Italy will issue a new 30-year BTP bond due on Sept. 1, 2051, came out on Wednesday, and the sale took place on Thursday.

Lyn Graham-Taylor, a fixed income rates strategist at Rabobank, said the fact that asset managers find it hard to obtain large amounts of Italian debt on the secondary market pushes them to be more aggressive when countries tap the bond markets directly. "Everyone is finding really difficult to pick up large chunks of Italy," Graham-Taylor said.

Another reason for the sale being so oversubscribed was that money managers know they will not get the amount asked for and so they always ask for more to make sure they get what they wanted in the first place, Graham-Taylor said. "A large order book size creates demand for even a larger order book size next time."

"There's a general hunt for yield obviously and also there's been a very positive spin on the peripheral in general because of the European Union recovery fund," he said. Expectations that the European Central Bank will increase or extend their bond-buying in December also added to investors' appetite for Italian debt, as that would mean investors will continue to have a reliable buyer of bonds - the central bank.

Italian 10-year BTP yield rose 1.3 basis points to 0.806%, a two-week high. Yields across older maturities rose by around 2 bps as well, with the 30-year yield also inching to a two-week high of 1.708%. Italy's rating is due to be reviewed by the credit rating agency S&P on Friday and this "could add to unease as government finances are stressed," ING analysts said in a note.

Italy is rated BBB with a negative outlook, and a one-notch downgrade would leave Italy's rating just above a feared junk rating. Benchmark U.S. Treasury yields also rose on Thursday, but held just below four-month highs as investors waited on whether lawmakers will agree to pass new stimulus before the Nov. 3 presidential election.

Democrat Joe Biden still leads the polls and that is why "markets very likely have set their eyes on the real prize already in terms of fiscal stimulus when Democrats get to power," ING said. Democrats are seen as more willing to spend on reviving the U.S. economy out of the coronavirus-induced rout.

Core European government bond yields also ticked higher amid the speculation of a possible U.S. spending boost. The benchmark German 10-year Bund yield rose slightly to -0.575%, but close to the -0.56% high it reached the day before, the highest since Oct. 14. ($1 = 0.8449 euros)

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