Italy sold on Friday 7.7 billion euros of conventional government bonds, which analysts said met with firm demand in the face of tightening yield spreads to German Bunds this week and a dearth of redemption cash flows. Italy sold just shy of its target ceiling of 8 billion euros of 3.0 percent April 2015, 3.75 percent August 2021, and 5.0 percent March 2025 BTPs.
The bid-to-cover ratios, a gauge of demand, were 1.27, 1.66 and 1.55 times respectively. The 10-year Italian BTP yield over euro zone benchmark German Bunds had narrowed by around 10 basis points to 85 basis points during the week. The latest sale of 3.5 billion euros of the 2015 BTP, the bid-cover ratio was lower than at the paper's debut on January 13 when 5.0 billion euros was sold and the cover ratio was 1.46.
With 840 million euros of non-competitive tenders carried out after the initial January sale, the total outstanding in the bond on Friday was 9.34 billion euros. Worthington said it was no surprise the 2021 BTP was well-supported by investor demand and saw the strongest of the cover ratios given the smaller allocation. But even the 2015 BTP found good demand despite being "really quite rich on the curve", he added. But some analysts were less impressed.
"(The five-year paper bid cover ratio) is low, but it's the on-the-run issue, and on-the-runs always trade cheap until they are about to go off-the-run, and then they appreciate. I'm not particularly surprised by that because there's no particular incentive to buy it," Diebel added.
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