France and Cyprus took full advantage of a market supercharged by expectations of more monetary stimulus from the European Central Bank to print syndicated bonds on Tuesday. France had garnered a maximum of 33.5 billion euros of demand for a 7 billion euro 30-year bond sale, a lead manager told Reuters, before pricing the deal at seven basis points over its outstanding 2048 bonds.
Cyprus too took full advantage of the strong bid for bonds to price its longest ever issue, a 1 billion euro 15-year which came at 175 basis points over mid-swaps in a further sign of how far the country has come since it returned to the capital markets in 2014, International Financing Review reported.
"This is a powerful indication of trust in the stability and prospects of our country," Cypriot Finance Minister Harris Georgiades said on Twitter.
Recent bond sales by euro zone sovereigns have been well-subscribed, and borrowing costs have fallen. French borrowing costs for example are near the lowest levels in well over two years.
"There is a lot of demand across the board: we saw Italy's 30-year get 41 billion euro of orders, and the French spread is quite wide after the 'yellow vest' protests," DZ Bank strategist Daniel Lenz said, referring to the protests in France against President Emmanuel Macron's policies.
French 30-year government bonds were 2.5 basis points lower following the bond sale, while its 10-year bonds fell just over one basis point to 1.54 and 0.53 respectively, .
The goodwill also spilled over into Spanish government bonds, the yields on which were also lower on the day, with its 30-year down three basis points at 2.443 percent. Italian government bond yields meanwhile rose across the board on Tuesday after data showed industrial orders in the euro zone's third-largest economy dropped 5.3 percent in December over the same month in 2017.
The data served as the latest reminder of the weak outlook for the Italian economy, ending a rally in prices sparked by expectations for a new round of cheap multi-year loans for banks by the ECB. Indeed, Italy's 10-year bond yield touched a day's high of 2.837 percent, though had pulled back from these levels as trading wore on to trade at 2.78 percent. The gap over German 10-year bond yields briefly widened 10 basis points to 274 bps before pulling back to 267.3 basis points.
As Italian bonds came under renewed selling pressure, safer German 10-year bond yields headed back towards their lowest levels since October 2016 touching 0.084 percent before pulling back to 0.106 percent.
"The industrial orders data from Italy has triggered this knee-jerk reaction of BTPs selling off and Bunds rallying," said Mizuho rates strategist Antoine Bouvet.
But Bouvet said the data could not be seen in isolation.
"The German equivalent also declined significantly in December and this will likely trigger some ECB easing and this could have the opposite impact on markets on tightening the Italian spread," he said.
Most other high-grade euro zone bond yields were also 1-2 basis points lower on the day.
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