Italian Bond Yields Jump After Rome Confirms It Will Issue 50 Year Bonds

What emerged one month ago as a rumor that Italy was contemplating the issuance of half-century, or 50 year, bonds amid a "global search for yield" was confirmed earlier today, when Italy's Treasury announced that Italy had hired Banca IMI, Goldman, HSBC, JPM and Unicredit as joint lead underwriters of this anticipated issue. "The new bond will “be launched in the near future subject to market conditions" with a structure similar to regularly issued BTPs, the Treasury said.

Once priced, Italy will become the latest nation to issue super-long bonds this year, following sovereigns including Belgium, France, Ireland and Spain in taking advantage of the historically low interest rates spurred by central bank stimulus. Italy's Treasury announced the issuance “after a thorough market analysis,” it said in a statement on Monday, Bloomberg reported earlier.

The bond sale announcement comes “at a delicate time because of the political backdrop” in Italy, said Orlando Green, a rates strategist at Credit Agricole SA’s corporate- and investment-banking business in London. “It does potentially weigh on BTPs in the near term,” he said, referring to Italian bonds.

The general terms :

  • Republic of Italy is rated Baa2/BBB-/BBB+
  • Maturity: March 1, 2067
  • To launch in near future, subject to market conditions
  • All other specialists to be invited as co-lead managers
  • Reg S/144a

The announcement will not exactly come as a surprise due to the abovementioned market trial balloons, however with confirmation that the issue is imminent, focus now turns to size. Here Bloomberg notes that Italy sold €6.5 BN of 20Y notes when it came to market in April, and €9b of 30Y bonds in February. Barclays expects a smaller issue, writing in August that it sees €4b as most realistic.

And while the full details of the upcoming issue are yet to be unveiled, the supply of duration has pressed the market, proving an added burden on the nation’s beleaguered market. As Bloomberg writes, concern over more long-term supply sparked selling in the final minutes of trading on Monday after the country’s Treasury announced the offering. Ten-year borrowing costs were already at a two-year high relative to Spain.

Following the news Italy’s 30-year securities fell, with the yield climbing eight basis points to 2.32% as of the 5 p.m. London close. It was the biggest increase in yields since September 9. The 2.7% security due in March 2047 dropped 1.770, or 17.70 euros per 1,000-euro ($1,121) face amount, to 108.51. The yield premium over similar-maturity Spanish bonds climbed to 33 bps on Monday, the highest since October 2014 on a closing basis.

The reason for the recent underperformance of Italian paper is due to the upcoming referendum on constitutional reforms taking place on Dec. 4, whose outcome could lead to further turbuluence for Italy's embattled prime minister. While PM Matteo Renzie has refused to be drawn into a promise to quit, which he made earlier in the year, Finance Minister Pier Carlo Padoan said Monday that a rejection of the overhaul would convey the idea that the government’s reform drive is being stopped and would harm confidence.