Italy Pays Most Ever To Place 15 Year Bonds
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."
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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