UPDATE 2-Italy draws 30 bln euros of demand for 15-year bond after ending budget row
(Releads with likely pricing, background, comment)
MILAN, Jan 15 (Reuters) – Italy drew more than 30 billion euros ($34 billion) of orders for a new 15-year bond sold through a syndicate of banks on Tuesday, showing strong appetite for Italian debt after Rome resolved a protracted row with Brussels over its budget.
The Italian government agreed in late December to cut its deficit target for this year, ending a dispute with the European Commission that had contributed to months of market turbulence. That brought down yields on Italian debt, as underlined by successful auctions last week.
The new BTP bond, due March 2035, will be priced later on Tuesday at 18 basis points over Italy’s outstanding September 2033 issue, according to Refinitiv’s IFR service — inside initial price guidance that was set at 20-22 basis points.
Order books closed at 1100 GMT.
Italy last completed a syndicated deal a year ago, selling a 20-year bond in January, months before the summer election of a populist government sapped appetite for Italian debt.
The deal “looks reasonably cheap and I think the deal is going to go well,” said John Taylor, a fixed income portfolio manager at AllianceBernstein, which has $550 billion of funds under management.
“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.”
Italy’s benchmark 10-year bond was yielding 265 basis points more than its German equivalent on Tuesday, much less than the 5-1/2 year high of 340 basis points it hit in October at the peak of the budget squabble between Rome and Brussels. German debt is the low-risk benchmark for the euro zone.
Earlier this month, renewed fears about the Italian banking sector triggered a new sell-off in the country’s debt.
The Italian government set up a 1.3 billion euro fund to support Banca Carige after the troubled lender failed to approve the issue of fresh capital and the European Central Bank stepped in to appoint temporary administrators.
Tuesday’s deal shows Italy’s ability to tap the market even in the long-dated maturities, according to Commerzbank rates strategist Christoph Rieger.
“This should bolster sentiment which has taken quite a hit from the banking stories,” he said, adding that he expected a final size for the issue of 7.5 billion euros.
Barclays, Citi, HSBC, JP Morgan and UniCredit are joint lead managers for the deal.
Larger euro zone countries like Italy use syndication to target particular groups of investors such as international or retail buyers or to conduct long-dated bond sales that might struggle to gain traction at auction.
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