Italy receives $12.1 billion of demand for U.S. dollar bonds

Italy received $12.1 billion of investor demand for its latest U.S. dollar bond sale on Tuesday, according to a lead manager, a day after its benchmark yield hit a seven-month high. Rome, which has been diversifying its funding sources after a sharp rise in borrowing needs due to the coronavirus pandemic, is selling three- and 30-year U.S. dollar bonds via a syndicate of banks.

Italy received $12.1 billion of investor demand for its latest U.S. dollar bond sale on Tuesday, according to a lead manager, a day after its benchmark yield hit a seven-month high.

Rome, which has been diversifying its funding sources after a sharp rise in borrowing needs due to the coronavirus pandemic, is selling three- and 30-year U.S. dollar bonds via a syndicate of banks. Analysts at Commerzbank expect the bonds will raise $5.5 billion.

It is Italy's third venture into this market after it launched its first dollar issuance since 2010 in October 2019. That has helped it build a yield curve in U.S. dollars, with today's sale adding to five-, 10- and 30-year bonds issued since. Italy managed to cut the yield it is offering on both tranches, with the shorter bond receiving $6.6 billion euros of demand and the longer $5.5 billion, according to the lead manager, though the yields Italy will pay were cut by less than on past dollar deals.

"It hasn't tightened as much from initial (price) guidance as I would have expected," said Peter McCallum, rates strategist at Mizuho. "Some of that might be the fact that it's not too attractive ... when swapped back into euros compared to existing BTPs," he added.

Analysts said that for the 30-year bond, that may also reflect greater anxiety around rates volatility in the United States. Italy also raised 5.5 billion euros in an auction of a short-term and inflation-linked bonds.

The issuance comes as Italian bond yields face upward pressure, given uncertainty over the pace of the European Central Bank's bond buying, which holds down borrowing costs, and a budget deficit set to surge to a 20-year high. On Tuesday, the 10-year yield rose 2 basis points to 0.82% after rising to its highest since October 2020 on Monday.

Still, positive momentum building around Italy's recovery prospects supported the issuance. Italy unveiled a 222 billion euro economic recovery plan on Monday, after reaching a deal with the European Commission on the use of its recovery fund. Ratings agency S&P affirmed Italy's BBB rating - the highest among the main rating agencies - with a stable outlook last week, citing the fiscal stimulus and accelerated vaccinations.

"We've been adding a little bit of (additional exposure to) Italy," said Gareth Hill, fund manager at Royal London Asset Management. "The backdrop of having a safer pair of hands in (Prime Minister Mario) Draghi now means that we're perhaps more comfortable from a fundamental perspective in Italy," he said.

Broadly, there was little clear market direction ahead of the U.S. Federal Reserve meeting starting on Tuesday, with Germany's 10-year yield, the benchmark for the euro area, unchanged at -0.25%.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)