Weak Italian, Belgian Bond Auctions Send EUR Lower, Sovereign Spreads Surging

Tyler Durden's picture

Today at around 5 am Eastern Italy conducted an auction of 3 and 10 year paper. The result was a very weak auction with spreads jumping compared to the prior auction even as BTCs dropped. The Italian treasury sold €5.5 billion of the BTPs, compared with the 83.5 billion to €5.5 billion planned. It also sold €1.339 billion of the October 2017-dated floating rate bond, or CCTeu, compared with €1 billion to €1.5 billion planned. But the sale came at a steep price. The 3 Year sale of €2.5 billion 2.25% bonds closed at 2.86% compared to 2.32% prior, and a bid to cover of 1.38 compared to 1.35 previously. The yield on the 10 Year auction came at 4.43% or over half a percent higher compared to the previous auction of 3.89%, pricing at a 1.27 Bid to Cover, much worse than the 1.42 previously.

More from Dow Jones:

Italy Monday paid higher yields than a month ago to sell three- and 10-year government bonds as markets failed to improve ahead of the sale, despite the announcement of a long-awaited bailout for Ireland.

The auction result was not surprising given the prevailing nervousness, and the yields came in tighter than secondary market levels. But the euro weakened to $1.3191/$1.3194 by 1045 GMT from $1.3203/$1.3207 before the close of bidding, and the 10-year Italian/German yield spread surged to a euro-era high of 1.83 percentage points.

"Demand for both lines was decent but not exceptional, given the concession given ahead of the auction," said Annalisa Piazza, an economist at Newedge.

And just to confirm that Belgium and Italy are just after Spain and Portugal on the bailout wagon, an auction held by Belgium earlier also came at decidely weaker Bid To Covers.

Belgian Auction results:

  • €0.62bln, 4.25% 28-Sep-14, bid/cover 1.79 vs. Prev. 2.24 (yield 2.288% vs. Prev. 3.839%)
  • €0.945bln, 3.75% 28-Sep-20, bid/cover 1.76 vs. Prev. 2.39 (yield 3.718% vs. Prev. 3.260%)
  • €0.435bln, 5% 28-Mar-35, bid/cover 1.79 vs. Prev. 2.38 (yield 4.157% vs. Prev. 4.816%)

h/t Mark's Market Analysis

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bonddude's picture

The RUN on the Eurozone has begun ! F#CKIN' SH!T !

johngaltfla's picture

Coming here soon....

DonutBoy's picture

Not as long as the Fed guarantees a profit to all primary dealers.  Under QE a treasury bond auction cannot get too ugly.

johngaltfla's picture

Care to wager on the consequences of a 50% SOMA takedown of an auction?

Oh regional Indian's picture

I suspect Italy will come out smelling like paper roses compared to the rest of Europe.

After all they play host to god's own rep here on earth, and sources say he's rich. 

My contrarian mind says Italy will be the surprise one standing, grand dysfunction and all.



Dismal Scientist's picture

Italy's debt is mostly owned by households or domestic institutions, similar to Japan. I think you're right. Its still Spain that is the big problem, since noone gives a toss about the Belgians.

ZeroPower's picture

+1 re Belgians. EU chose it as an HQ for a reason - country is too small to matter politically (before the EU that is) and economically, it depends on its close cousins the French and Dutch.

litoralkey's picture




Or, Free Flanders from Freedom!



Whichever floats your boat.

DonutBoy's picture

I think the Irish "gift" sealed the fate of all sovereign debt auctions.  All new debt shorted until the ECB forces the sovereign to absorb all risk for the "senior" (German) bond-holders.  They've guaranteed contagion - because contagion means no haircuts for the guys running the ECB.

dojiman's picture

Its going to get cheaper to buy those Italian super tuscans, that cant be bad for us non banksters out there. 

Josephine29's picture

I guess the fact that the EU is using average interest rates in its statement is making everybody wonder exactly how much it will be charging Ireland for its loans. If the average rate is 5.8% and other rates such as the IMF are cheaper then the EU must be charging more.

According to notayesmanseconomics.

So the remaining funds from the bilateral loans/EFSM/EFSF cost 4. 9 billion less 1.49 billion or 3.41 billion Euros per year. As they are 45 billion in total then the interest rate on them is approximately 7.5%. This is not what it has been badged at.


If this is right no wonder they are not revealing it!





Buck Johnson's picture

The EU is melting down and the market people are shorting it in order to make money.  They know that eventually there isn't enough money for them to continue to bailout countries that won't even pay the money back.  Italy has more debt than Spain, and I started to hear about Belguim earlier today I should have known.  I think what will happen is a run out of the Euro back into their own currencies. 

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