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Italy Pays Most Ever To Place 15 Year Bonds

Tyler Durden's picture




 

While it is unclear if the ECB intervened in the second Italian bond auction of the week (we will know better over the weekend when the ECB provides the weekly change in its bond purchasing program), the much anticipated issuance of 5 and 15 year bonds is now in the rear view mirror. As Reuters says, "Italy sold almost 3 billion euros of medium- and long-term government bonds on Thursday in a sale which analysts said went well although the Treasury had to pay the highest premium on record to sell 15-year paper.  The gross yield on the 5-year BTP jumped to 4.93 percent, the highest
yield in auction since June 2008 and compared with 3.90 percent in the
last auction a month ago. The new 15-year benchmark drew bids 1.49 times
the amount offered and a gross yield of 5.90 percent, the highest on
record. The auctions were seen as a key test of market appetite for the country's debt after it got sucked into the debt crisis, sending its benchmark 10-year yields briefly above 6 percent on Tuesday for the first time since the euro's launch in 1999." The prior 5 and 15 year bonds priced at 3.90% and 5.34% respectively, and 1.28 and 1.33 for the Bid To Cover. Yet with the 15 Year trading at 5.99% just prior to the auction, it does seem that there was a positive surprise. We will bring you any stories of ECB or Chinese intervention as we see them.

Some reaction to the auction from Reuters:

MICHAEL LEISTER, STRATEGIST, WESTLB, LONDON

"As expected the Italian Tesoro printed good results for its five- and 15-year BTP taps. The 2016 BTP was the one to watch, being the current five-year benchmark and having suffered heavily versus the curve going into auction. Both the high coverage as well as solid overbidding underline solid demand.

"Clearly, the Tesoro wanted to play it safe, which is more than justified to our view in order to prevent a further meltdown. However, the big picture -- i.e. the risk of self-sustaining vicious yield-downgrade circle -- remains unchanged and the market continues to wait for policymakers to come out with a solution"

DAVID SCHNAUTZ, RATE STRATEGIST, COMMERZBANK, LONDON

"As we expected...the Tesoro ...exhaused the overall 3-5 billion euro target range almost fully. After spreads versus. Bunds have been broadly stable across the 'Tier 2' spectrum this morning, we expect the market to trade with some relief now that the Italian quattro feature is out of the way.

"A look at the outright yield levels is eye-watering, though: for example the 5-year BTP was reopened today at around 5.06 percent -- taking the placement fee into account. We stick to our recommendation to keep duration and 'Tier 2' versus core spread exposure very close to home."

ORLANDO GREEN, STRATEGIST, CREDIT AGRICOLE CIB, LONDON

"The Italian BTP auctions were well received under the circumstances in terms of volume demanded by the market as well as some decent overbidding. It must be said that there was some concession ahead of the auction to help the absorption of supply. Despite raising the necessary funds, it came with borrowing costs having risen at an unsustainable pace recently and therefore the passing of the austerity package is crucial in the days ahead."

PADHRAIC GARVEY, STRATEGIST, ING, AMSTERDAM

"It looks like the job has gotten done. Bid covers are OK. The main objective was to get the bonds into the market at or about secondary market levels and they've done that here.

"It was certainly my baseline (scenario) that there wouldn't be an issue getting this paper into the market and we've seen some decent demand into these auctions our selves, so overall, job done."

HUW WORTHINGTON, STRATEGIST, BARCLAYS CAPITAL, LONDON

"I thought they were pretty good. It's obviously a pretty stressed market, pretty shocking concession I suppose over the last few days ... the auction results went well, good over-bidding, strong bid-to covers.

"I don't think we expected anything different from that, and the small outright size of the auction helped that. There is obviously demand out there ... It's a very high level (on) outright terms to be issuing Italy but there is demand there."

BACKGROUND:

Twenty Italian and international banks act as primary dealers for the Treasury, a role which includes a commitment to underwrite at least 3 percent of the Treasury's offer in the course of the year.

Analysts had expected the auction to be well received, also thanks to behind the scenes lobbying and clever pricing by the Treasury.

 

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Thu, 07/14/2011 - 07:06 | 1455326 oogs66
oogs66's picture

i was just noticing that italian and spanish 10 year yields were back to where they were before the ecb/china intervention rumors...that market manipulation by the government lasted even less than the oil release one

Thu, 07/14/2011 - 07:14 | 1455329 Cognitive Dissonance
Cognitive Dissonance's picture

Michelle Caruso "Goggles" Cabrera was just on CNBC live from Italy telling me all was well and that Italy has hit a home run here, selling these bonds for much less than was expected and with great outside participation to boot.

I believe everything "Goggles" (both upper and mid level pair) tells me.

 

BTW, when she goes to the gas mask she is much more coherent.

Thu, 07/14/2011 - 07:24 | 1455360 Ghordius
Ghordius's picture

Last week in Athens nobody even tried to sell me any goggles or gas mask. This is the sorry state of entrepreneurship in the EU.

I would have loved to send a few MMS of me with props in front of this "GREEECE IS RIOT MADNESS - AAARGH" background. Sadly, I have found no such background...

Reporters live in an alternative reality.

Thu, 07/14/2011 - 07:26 | 1455367 Peter K
Peter K's picture

Notice the Euro/USD quote;)

Thu, 07/14/2011 - 07:39 | 1455390 Sudden Debt
Sudden Debt's picture

I think woman with gasmasks are sexy!

But if they wear that, they should show their tits.

At least.

 

Thu, 07/14/2011 - 07:44 | 1455399 Cognitive Dissonance
Cognitive Dissonance's picture

I love MCC when she's wearing her Goggles. And the gas mask sends me over the top to puppy love.

<sigh> I love MccGoggles.

Thu, 07/14/2011 - 07:11 | 1455333 lolmao500
lolmao500's picture

A little question... what will happen to the states and municipalities bond markets if the US defaults? They gonna blow up?

Thu, 07/14/2011 - 07:17 | 1455348 Ghordius
Ghordius's picture

Concentrate, this is about Italian bonds!

Now seriously, why should the US ever default? Because the Republicans are posturing about it? No way.

10% chance you'll see a bit of government shutdown, it would not be the first time.

Thu, 07/14/2011 - 07:11 | 1455334 Ghordius
Ghordius's picture

If there is a breaking point it will be in September.

If the "Tesoro" passes this September test, then the "Italian Problem" is over until the goverment changes.

As long as there is no French Banking crisis!

Thu, 07/14/2011 - 07:14 | 1455342 HTZMR
HTZMR's picture

the ECB won't intervene to prop up Italy. They did so with Greece only to see German politicians demand creditors accept forced rollover. And it would take a hell of a lot of freshly printed euros to move the Italian bond market - the third deepest in the world after U.S. and Japan.

 

Thu, 07/14/2011 - 07:30 | 1455372 Ghordius
Ghordius's picture

I agree in the spirit of your sentence but not in the details, for the ECB it makes sense to buy a few billions of Italian Bonds now if this can quiet the waters until the August and September tranches are over.

On this, you'll find most Germans to agree.

Thu, 07/14/2011 - 07:36 | 1455384 jm
jm's picture

Totally disagree.  They can rapid fire bond futures and wag the cash market.

There will always be dogs that chase cars.

Thu, 07/14/2011 - 07:16 | 1455346 Hiwatt
Hiwatt's picture

The ECB intervention rumors this week are complete bullsh*t. The SMP is over for the time being, wake up. If they want to restart/revamp the program they will make sure everyone knows. 
Reuters as source of auction "color" is ridiculous: 

"the NEW 15yr benchmark" ??? New my buttock, it's the 7th tap after the initial auction at in September 2010....

Also comparing the yield at taps/auctions to last auction for the bond is GROSSLY MISLEADING:  the last 3/26 tap was on the 8th of March of this year....

Go on.....keep the attention away from the Red-White'n'Blue 400 pound gorilla in the room...

Thu, 07/14/2011 - 07:17 | 1455347 Dick Darlington
Dick Darlington's picture

And after the auction both Italy and Spain bond curves collapsed...

Thu, 07/14/2011 - 07:24 | 1455359 oogs66
oogs66's picture

remember the current Greek 10 year bond was a "massive success" in March '10.  6.5% yield.  Within 2 months it was trading below 70 cents on the dollar

Thu, 07/14/2011 - 07:34 | 1455380 Ghordius
Ghordius's picture

Are you seriously comparing the two countries? How?

The Italians debate about different austerity programs, the Greeks debate... well, they debate.

This is another misconception about the EU, that somehow Greece and Belgium are about as far apart as California and Florida...

Thu, 07/14/2011 - 07:25 | 1455365 Peter K
Peter K's picture

"We will bring you any stories of ECB or Chinese intervention as we see them".  Why, is there a difference;)

Thu, 07/14/2011 - 07:31 | 1455375 Dick Darlington
Dick Darlington's picture

Tyler, check out Italian 10 yr bond future. ECB plunge protection team in fire?

Thu, 07/14/2011 - 07:54 | 1455416 Hiwatt
Hiwatt's picture

plainly illiquid. Which works both on the downside AND on the upside. 
A 300-odd lots buy order went through (€ 30 million bond equivalent).

Thu, 07/14/2011 - 07:44 | 1455398 THE DORK OF CORK
THE DORK OF CORK's picture

If Italian yields are the average in the Eurozone how can Euro bonds work ?

There is simply not enough money in the eurosystem now.

It needs a massive base money injection.

Thu, 07/14/2011 - 07:52 | 1455412 Ghordius
Ghordius's picture

Eh? Why? (scratching head)

When you buy a 5y or a 15y you are basing your decision on the expectations for the next years. A future which might include base money injection.

But why in all heaven's sake do you clamor for a "massive base money injection"?

Thu, 07/14/2011 - 08:05 | 1455442 THE DORK OF CORK
THE DORK OF CORK's picture

We are told that most of the Euros debt is internal ....

If so a increase in the base money supply will just redistribute the wealth.

However more & more of Europe's wealth is being exported to Arabia & Russia for oil & Gas where there is massive consumption increases.

(Ireland must export overvalued horses to Arabia which is clearly not a efficient trade)

Europe seems incapable of taxing cars off the road given Germany's mercantile love affair with cars - given the fact that Europe is unable to come up with a rational energy strategy printing a trillion euros or so will be a more inefficient but perhaps a more brutal solution towards a rational energy policey.

 

 

Thu, 07/14/2011 - 08:05 | 1455441 Urban Redneck
Urban Redneck's picture

If Italian yields become the average in the US-zone how can US bonds work ?

There is simply not enough money in the US-system now.

It needs a massive base money injection.

Thu, 07/14/2011 - 08:09 | 1455447 virgilcaine
virgilcaine's picture

The gay Brit at cnbc will be in an uproar over this!  Those darn traders are at it again, they have no business probing the Italians. 

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