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Italy’s Next Bond Sale Is Like a Public Vote on Crisis Handling

Italy’s Next Bond Sale Is Like a Public Vote on Crisis Handling

(Bloomberg) -- Italy needs to sell more debt and next week it will target the public, in what may amount to a vote on Rome’s handling of the economic crisis.

A four-day auction of inflation-linked bonds aimed primarily at the retail market will begin Monday, as the government seeks to build on the success of recent sales to institutional investors. Yields have fallen since the Treasury attracted a record-breaking 110 billion euros ($119 billion) of orders for a sale last month.

Italy’s Next Bond Sale Is Like a Public Vote on Crisis Handling

The retail offering could be as much as 15 billion euros, according to Commerzbank AG, which would make it the highest in six years. The Treasury has set a minimum coupon of 1.4% on these five-year notes and tagged them “for Covid-19 emergency.” And as if to sweeten the deal, the government announced Friday it will allow citizens free movement within the country from June.

“In contrast to previous issues there will be no early closing, which could support the notion of a decent volume,” said Rainer Guntermann, a fixed-income strategist at Commerzbank.

The last retail sale was in October when almost seven billion euros of these bonds were sold, while an offering in November 2018 saw domestic investors give a resounding thumbs-down to the new coalition government’s funding efforts.

Regional bond investors have economic data to assess, as they bid for debt at a record pace. Signs of any stabilization could show up in global preliminary purchasing managers’ data for May. For the euro-zone on Friday, they are expected to show readings recovering from a record contraction, following recent stimulus efforts taken by the European Central Bank and governments.

“It is reasonable to expect several firms to say that their activity picked up some momentum as lockdowns started to be gradually lifted,” said economist Thomas Strobel at Italy’s UniCredit SpA.

It’s a similar picture for the PMI numbers in the U.K., after a sale of 10-year syndicated debt this week attracted all-time high bids of over 82 billion pounds.

The U.K. will hold two regular gilt auctions and one inflation-linked bond sale next week and buy back bonds at a steady rate of 1.5 billion pounds per operation. Scheduled euro-area bond sales from Germany, France, Spain and Belgium are set to total around 25 billion euros for the week, according to Commerzbank. There are no bond redemptions and only negligible coupons to be paid.

Next week:

  • Euro-area, German and French preliminary manufacturing and services PMI for May are due Friday
    • Much of Europe will be on holiday Thursday for Ascension Day, although markets will be open
  • Germany’s ZEW survey for May is published Tuesday
  • U.K. March unemployment rate is scheduled for Tuesday, consumer price index inflation data for April is due Wednesday followed by preliminary manufacturing and services PMI for May on Thursday; April retail sales figures and government borrowing data round off the week on Friday
  • ECB’s Pablo Hernandez de Cos discusses Spanish economic forecasts in Parliament on Monday and chief economist Philip Lane speaks on monetary policy on Tuesday
    • ECB publishes account of its policy meeting Friday
    • BOE’s Silvana Tenreyro speaks about the Covid-19 policy response on Monday, followed on Wednesday by Governor Andrew Bailey, Ben Broadbent and Jon Cunliffe who testify to the U.K. Parliament’s Treasury Committee
  • Fitch Ratings reviews Portugal’s BBB rating Friday, on which it holds a stable outlook

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