February 6, 2019 / 12:36 PM / in 5 months

UPDATE 5-Italy's new 30-year bond draws record demand

* Second syndicate bond sale in less than a month

* Italy back in market favour after difficult months

* Treasury must raise around 400 bln euros in debt this year (Adds final pricing in par 5)

By Elvira Pollina and Giulio Piovaccari

MILAN, Feb 6 (Reuters) - Investor demand for a new 30-year Italian bond reached 41 billion euros ($47 billion) on Wednesday, allowing the Treasury to raise 8 billion euros.

Wednesday’s highest-ever demand for an Italian syndicated issue contrasts with the sell-off that hit the country’s debt last year, when a eurosceptic, anti-austerity government took office and prompted foreign investors to dump more than 77 billion euros in Italian debt between May and November.

But a deal in December that ended a dispute between Rome and the European Union over Italy’s 2019 budget has opened a favourable market window, and last month Italy seized the chance to offer its first syndicated bond issue in a year.

The 30-year deal follows a mid-January sale of 10 billion euros of a new 15-year bond, which drew more than 35.5 billion euros in orders. Seventy percent came from foreign buyers.

The latest 30-year bond, maturing in September 2049, was priced to offer a yield of 3.91 percent, the Treasury said in a statement.

Italy last offered a new 30-year bond in June 2017, selling 6.5 billion euros of a March 2048 bond via syndicate at a 3.54 percent yield, after drawing 24 billion euros in orders.

The yield premium the latest 30-year bond offers over the March 2048 bond was tightened during the session on the back of the strong demand.

VOLATILITY

“It went very well... It seems the market has priced in all the negative news, although further volatility cannot be ruled out. Italy is not at risk of default, but it has a political problem,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.

An 8 billion-euro issue would bring debt issued by Rome since the beginning of the year to more than 68 billion euros. That’s around 17 percent of this year’s total estimated needs.

Italy agreed in December to lower its deficit target for 2019 to 2.04 percent, ending a protracted row with Brussels which had contributed to months of market turbulence.

The Treasury is also riding a wave of risk appetite that’s being fuelled by optimism over U.S.-China trade tensions and the Federal Reserve’s dovish stance on U.S. interest rates.

“Because the Italian recession is coinciding with broader weakness in the euro area, we are very constructive on the long end of the Italian curve - it is the safe haven in the Italian bond market,” said Mizuho’s head of rates Peter Chatwell.

Banca IMI, BNP Paribas, Credit Agricole CIB, Deutsche Bank and Goldman Sachs International Bank are the joint lead managers for the syndicated issue. ($1 = 0.8783 euros) (Additional reporting by Danilo Masoni in Milan and Abhinav Ramarayan in London; , writing by Giulio Piovaccari; Editing by Hugh Lawson, Gareth Jones, Larry King, William Maclean)

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