Forex - Eurozone Bond Flows: Italian bonds saw decent demand at today's auction as cash-flow reinvestments may have off-set a diminished appetite from lower yields and concerns over weaker fundamentals


 10:04 (GMT) 11 Apr

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Italy launched today the new 7y BTP 2.1% 07/26 for EUR 3.75bn and also tapped the 3y BTP 1% 07/22 for EUR 2.5bn and the 15y BTP 3.35% 03/35 for EUR 1.5bn. All three lines were sold at the upper end of their respective issuance ranges.

Despite a good performance of peripheral bonds, supported in particular by a strong performance of Greek paper as the IMF revised the country's primary surplus for 2019 up to 3.5% of GDP, Italian bond yields opened a touch higher as Italy released lower growth estimates and consequently higher deficit and debt forecasts for 2019-2021 this week and as concerns began to emerge among EU officials about the negative impact of further simulative fiscal measures on the country's already weak public finances.

Nevertheless, over the past few days, markets have seemed relatively satisfied with the Italian government acknowledging the slowdown in Italy's economy in 2019 compared to previous forecasts rather than painting an unrealistically rosier picture to justify further spending. Also, Italian bonds have been supported into the upcoming supply by large cash flows for over EUR 11bn although mostly from the re-investment of a maturing issue.

However, the upcoming rating review by S&P on April 26 may soon begin to come into focus as a possible source of concern for market participants while some official reaction by the EU Commission to the new Italian budgetary figures may also be expected in the near term now that the more pressing institutional issue of an extension of the Brexit deadline has been dealt with.

The 3y BTP 07/22 was sold at 99.61, 1.5ct above mid-market prices, for a yield of 1.125% vs. 1.11% at the bond's launch on March 13. Demand was 1.62 times the amount sold vs. 1.49 in March when the amount sold was nevertheless significantly larger.

The New 7y BTP 07/26 was issued at a price of 100.08, a good 10cts above market, yielding 2.099%. Bids totalled 1.36 times the amount sold.

Finally, the 15y BTP 03/35 was increased at 104.38, 5cts above market, implying a yield of 3.023% and with a bid-to-cover ratio for the auction of 1.37. The bond was also at its first re-opening since its launch via syndication in mid-January when it was sold at 99.609 yielding 3.41%.


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