Italy Plans 30-Year Bond Sale as Spain Studies New Benchmark

Italy is preparing to sell new 30-year bonds even as inconclusive elections pushed borrowing costs up from near the lowest in two years. Spain also said it may issue new debt.

Italy is in talks with investors and plans to lengthen the maturity of its bonds as demand returns, debt agency head Maria Cannata said today at the Euromoney Bond Investors Congress in London. The euro-area’s biggest bond market may also sell 10-year inflation-linked securities this year, she said. The nation faces fresh elections after inconclusive polls last week left the biggest vote winner Democratic Party leader Pier Luigi Bersani without an effective legislative majority.

“The market is convinced a good solution will be found, even if the situation is quite complex now,” Cannata said. The bond market has reacted “quite well,” she said.

Thirty-year Italian yields dropped to 4.87 percent on Jan. 10, the lowest level since November 2010. The rate was 5.33 percent today, down from last year’s high of 7.07 percent.

Ten-year yields jumped to as high as 4.96 percent after the Feb. 24-25 elections resulted in a hung parliament and handed former premier Silvio Berlusconi a blocking minority in the upper house. The rates reached as low as 4.07 percent on Jan. 25, the least since November 2010 and were at 4.66 percent today.

‘Difficult Market’

Italy sold 10 billion euros ($13 billion) more debt than it needed to last year despite a “very difficult market environment,” Cannata said. The debt agency remains committed to issuing debt of all maturities, she said.

Spain is considering a sale of new 10-year bonds via banks as soon as mid-year and of a new 15-year security, deputy debt chief Ignacio Fernandez-Palomero Morales said.

The Spanish bond market has rallied since July and Morales said it remains unscathed by the deadlock in Italy.

“We think that we would be able to go again for 10-year issuance in this environment,” he told reporters. “We have to remain flexible.”

Yields on Spanish 10-year bonds are about 15 basis points, or 0.15 percentage point, lower than before the Italian elections as investors bet the European Central Bank’s pledge to buy the bonds of struggling nations will prevent contagion spreading beyond Italy.

The additional yield investors demand to hold Spanish bonds due in 2023 over their German counterparts has fallen to 356 basis points, from as much as 650 basis points on July 25. “We have seen very aggressive spread tightening,” Morales said.

Spain is set to auction as much as 5 billion euros of debt due between 2015 and 2023 at a sale tomorrow.

Ten-year Spanish yields declined four basis points to 5.01 percent today from 5.15 percent on Feb. 22.

France’s debt agency may sell a new 30-year benchmark, said Maya Atig, deputy chief executive of Agence France Tresor, the nation’s debt agency. The 30-year rate rose three basis points to 3.18 percent.

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