Draghi Euphoria Could Last a Century in Italy’s Bond Markets

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Italy should seize on the debt rally spurred by Mario Draghi’s looming appointment as prime minister and sell its first ever century bond, according to an analysis by Saxo Bank A/S.

The 100-year securities would yield around 2.5%, Althea Spinozzi, fixed-income strategist at the bank wrote in a note to clients. That’s roughly the average yield on three-year equivalents over the past two decades.

Draghi Euphoria Could Last a Century in Italy’s Bond Markets

“This is the right time for countries to expand bond issuance in ultra-long maturities to fund budget deficits while securing extremely low yields, an opportunity that we believe a country like Italy cannot ignore,” she said.

Benchmark Italian bond yields have hit successive record lows this week as expectations grow that former European Central Bank President Draghi will stave off a political crisis in the country following the collapse of the ruling coalition last month. He’s also expected to help push through key structural reforms.

Draghi Euphoria Could Last a Century in Italy’s Bond Markets

Italy’s longest-dated bond is a 50-year security issued in 2016, which currently yields around 1.7%. While century bonds remain a rarity, long-dated debt has become more popular this year, both for investors moving further out the curve to escape sinking rates and countries looking to lock in historically cheap financing.

Buoyed by the ECB’s bond-buying program, Italian 10-year debt now yields around 0.48%, a far-cry from spiraling financing costs of a decade ago that required Draghi to pledge he would do “whatever it takes” to tame the turmoil. They touched a high of 7.48% in 2011.

Despite this spectacular rally, demand for Italian debt in government bond auctions remained solid on Thursday, underlining investor faith in the nation’s trajectory.

Belgium, France, Slovenia and Spain are among nations in the region that have sold bonds with 50-year maturities or more so far this year. Austria issued a second century bond last year.

©2021 Bloomberg L.P.

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