Italy Said to Raise 8 Billion Euros in Rapid Bond-Market Return

(Bloomberg) -- Italy will price 8 billion euros ($9.1 billion) of bonds in its second syndicated sovereign sale this year, as investor appetite shows little let-up from a record-breaking deal just three weeks ago.

Orders in the sale surpassed 41 billion euros, beating last month’s offering of shorter bonds. Wednesday’s September 2049 notes will price at 18 basis points above benchmark rates, as much as four basis points tighter than the initial price target, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.

Italy aims to raise about 250 billion euros of debt this year, and the country has rushed back into the bond market as calm financial conditions and receding risks central banks will raise interest rates are stoking demand for high-grade debt. Austria, Belgium and Finland all got record syndicated orderbooks in recent weeks.

Italy’s rapid return “speaks volumes about the current attractive backdrop for issuers,” Rainer Guntermann, a Commerzbank AG rates strategist, said in a note. The country seems set “to front-load as much funding as possible as uncertainties from politics or central banks may be looming later in the year,” he said.

Indeed, demand for fixed-income securities has been buoyant globally. Japan received the strongest response for a 10-year offering in 13 years, while serial defaulter Ecuador managed to sell $1 billion in new debt. Greece, the nation hardest hit by the euro-area financial crisis, drew orders four times the size of its 2.5-billion-euro sale last week. Italy got more than the 35.5 billion euros of bids a 10 billion-euro sale of March 2035 notes last month.

Italian bonds notched up a third month of gains in January, buoyed by thawing political risk and diminishing investor conviction that the European Central Bank will be able to increase interest rates this year. The strong performance is a far cry from the market turmoil seen around the middle of last year, when the country found itself embroiled in a budget dispute with the European Union over plans to increase its spending above the bloc’s limits.

Italy’s Bonds Are Still Getting a Lift From the ECB’s QE Program

The outlook for Italian assets isn’t without risks. The economy has slipped into a recession after contracting through the last two quarters. Relations between the two ruling parties -- the League and the Five Star Movement -- have also been fraught, raising the possibility of early elections.

“It’s a lot of duration supply in a short period of time,” said Pooja Kumra, Toronto-Dominion European rates strategist. “Clearly the treasury wants to pre-fund as much as it can in this low-yield environment.”

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