Italy attracts record demand for dual tranche bond as investor confidence strengthens
Adds comment, details
By Sara Rossi
MILAN, Oct 22 (Reuters) -Italy drew record demand for its dual tranche bond issuance on Tuesday as investor confidence strengthened after ratings agency Fitch upgraded the country's outlook last week, in a boost to Prime Minister Giorgia Meloni's government.
Investors also consider the country's high bondyields attractive, as the European Central Bank's loosening cycle looks set to continuewith a 25 basis point rate cut expected in December.
The issue on Tuesday of a new seven-year BTP bond and a tap of a 30-year BTP note attracted orders of over99 billion euros ($107.17 billion) and over 101 billion euros respectively, which analysts said was thehighest-ever total demand for a dual-tranche bond sale in Italy.
Rome had also seen record demand for a single-tranche bond sale in September when it issued its 30-year BTP bond, in another sign of the market's strong appetite for Italian paper.
"BTPs are benefiting from declining volatility, contained issuance activity until year-end and a stable political situation in Italy." Francesco Maria Di Bella, strategist at UniCredit, said.
The Treasury sold 10 billion euros' worth of its new seven-year tranche, and 3 billion euros' worth for the 30-year tap.
The new note, due Nov. 15, 2031, saw a yield of 7 basis points over the outstanding BTP maturing in July 2031 after an initial yield guidance of around 9 bps.
For the 30-year tap, due Oct. 1, 2054, the spread was set at 9 basis points over the outstanding BTP maturing in October 2053 after an initial yield guidance of around 12 bps.
"This syndicated deal, which came as a surprise, reduces the likelihood of a retail bond," UniCredit analysts wrote on Tuesday in a report. Last year Rome saw a retail state bond boom, with a total of some 44 billion euros of investment.
This year the Treasury sold to small investors around 30 billion euros to date.
FALLING YIELDS
Italian debt lured moreforeign investors during the first half of this year, with their holdings standing at29.3% of the total inJuly, up from 27.2% a year earlier, according to Bank of Italy data.
Italy's bond yields fell in October to their lowest levels since September2023 after the government cut its deficit to GDP targets for this year and next and said the fiscal gap will fall below the European Union's 3% of GDP limit in 2026.
Rating agency Fitch last week raised Rome's outlook to "positive" from "stable", citingrecent improvements in the fiscal performance of the euro zone's third largest economy and its commitment to EU budget regulations.
The Treasury said on Monday it had hired Deutsche Bank, Goldman Sachs Bank Europe, Intesa Sanpaolo, J.P. Morgan, Morgan Stanley Europe and Nomura Financial Products Europe for the sale.
($1 = 0.9238 euros)
Reporting by Sara Rossi, editing by Susan Fenton and Gavin Jones
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