February 6, 2019 / 9:14 AM / 5 months ago

UPDATE 3-Italy's long-dated yields spike as new 30-year issue flies

(Updates prices, adds ECB story)

By Abhinav Ramnarayan

LONDON, Feb 6 (Reuters) - Long-dated Italian government bond yields rose to three-week highs on Wednesday as investors made space for a new 30-year syndicated debt issue that attracted a hefty 41 billion euros of orders.

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

Wednesday’s sale was also encouraging given that the Italian economy has slipped into recession and there are signs of strains within the ruling coalition.

With the broader euro zone economy weak and European Central Bank policy likely to remain loose for the foreseeable future, analysts said there were clear benefits to buying the new issue.

Maturing in September 2049, the new bond is set to offer a yield premium of 18 basis points over the March 2048 issue, Italy’s current 30-year benchmark.

“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.

“We are in an environment where the ECB either hikes rates - which would flatten the curve - or keeps rates as they are for the foreseeable future - in which case the long end really rallies.”

The yield on Italy’s outstanding 30-year bonds hit a three-week high of 3.74 percent and was last up around 8 basis points on the day. Yields often rise ahead of a bond sale as investors make space for the new supply.

Other Italian bond yields rose 4-5 bps to their highest levels in about three weeks.

Analysts said a sources-based report by Bloomberg that ECB officials saw no urgent need to offer new long-term loans to banks added to the selling pressure in Italian bond markets.

The successful Italian sale may help soothe sentiment.

Many euro zone countries have received record demand for bond sales this year so far.

Finland became the latest seller to generate record levels of demand for a new 10-year issue on Tuesday, providing further proof of the popularity of safe-haven euro zone debt against a backdrop of weakening global growth.

Other euro zone bond yields hovered near recent lows on the day after German industry orders were unexpectedly low, a further sign that factories in Europe’s largest economy are shifting into lower gear due to a slowing world economy.

Germany’s 10-year government bond yield was unchanged at 0.165 percent, not too far from a one-month low of 0.147 percent hit at the start of February. (Reporting by Abhinav Ramnarayan; editing by John Stonestreet)

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