Italy Bond Sale Draws Record 35.5 Billion Euros of Investor Bids

(Bloomberg) -- Italy drew record demand of more than 35.5 billion euros ($41 billion) for its first syndicated debt offering this year, suggesting a turnaround in investor sentiment toward one of the euro area’s most indebted economies.

Demand for the 10 billion euros of March 2035 notes comes after Italy’s populist government was able to strike a budget agreement with the European Union, ending a protracted standoff that rattled the euro area and help make Italian bonds among the worst-performing securities in the region last year. Spreads narrowed after a deal came into view.

Tuesday’s orderbook, which is about 10 percent higher than a sale in January last year, is a boost for the government’s efforts to raise about 250 billion euros of debt this year. An election in March led to the formation of a populist coalition that promised to boost spending and cut taxes, even as Italy wrestles with a debt-to-GDP ratio of more than 130 percent -- the highest in the euro area after Greece.

The deal “should provide proof that business is back to usual for the Tesoro and entice sidelined investors to return to BTPs,” Societe Generale SA analysts including Adam Kurpiel wrote in a note.

Italy will price the notes at 18 basis points above benchmark rates, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to discuss the information. That’s as much as four basis points below the initial price target range. The orderbook tally includes 2.8 billion euros of joint lead manager interest.

A spokesman for Italy’s debt agency, who asked not to be identified in line with internal policy, confirmed the size of the orderbook is a record for a syndicated sale from the nation. In the secondary market, the yield on existing 15-year notes climbed 3 basis points to 3.21 percent.

Italy is the sixth sovereign to offer euro-denominated syndicated debt this month, following sales from Belgium, Ireland, Israel, Portugal and Slovenia, according to data compiled by Bloomberg. The traditional January sovereign rush comes after an increase in euro market borrowing costs last year, partly caused by Italian political upheavals.

Pricing on Tuesday’s sale is wider than the 16 basis points Italy paid to sell a long 20 year note about a year ago. Books on that sale closed in excess of 31 billion euros, data compiled by Bloomberg show.

Barclays Plc, Citigroup Inc., HSBC Holdings Plc, JPMorgan Chase & Co. and UniCredit SpA are working on the new transaction. Italy intends to sell about 250 billion euros of debt this year through bonds and other instruments, according to a government plan.

--With assistance from Neil Denslow, Shoko Oda and Ven Ram.

To contact the reporters on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net;Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Tom Freke at tfreke@bloomberg.net, Neil Denslow, Hannah Benjamin

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