LONDON, Aug 30: Italian bond yields rose on Thursday in the run-up to the launch of a new 10-year bond that was expected to find willing bidders, but underscore the country’s high borrowing costs.
Italy returns to the market after a month-long absence with the new bond, expected to be sold at a yield close to 6 percent, alongside auctions of an existing five-year bond and a floating rate CCTeu note.
The sale follows successful auctions of shorter-term debt this week, and analysts said it should meet similarly solid demand, supported by the prospect of the European Central Bank unveiling details of a new bond-buying programme for struggling euro zone states.
Nevertheless, bonds typically cheapen before an auction as dealers sell to make room for the new paper and yields on the current 10-year benchmark were 6 basis points higher on the day at 5.84 percent.
‘There was good short covering yesterday (in Italian bonds) so I think we may need to see more of a concession built in this morning… It’s a reasonable chunk of bonds coming into a quiet market,’ a trader said.
The new 10-year bond, expiring in November 2022 , yielded a shade under 6 percent in the grey market where the bond is traded ahead of issue.
‘Given the levels yields were at some weeks and months ago, the current environment is more favourable for Italian papers, but as a long-term prospect the borrowing cost remains too elevated,’ said BNP Paribas rate strategist Patrick Jacq.
BUNDS RISE
German Bund futures were 27 ticks higher at 143.85, well within the week’s tight range as trading remained subdued before much-anticipated meetings of central bankers in the coming week.
Technical support for the contract came at last Friday’s low of 143.42 while 144.17, the 62 percent retracement of the July to August sell-off, was seen as a significant barrier to any rises.
Investors looking for signals on the U.S. Federal Reserve’s stance on a fresh round of quantitative easing will closely follow on Chairman Ben Bernanke’s Friday speech, while the main focus for the euro zone will be next Thursday’s ECB meeting.
The ECB is expected to reveal details of a plan to begin large-scale purchases sovereign bonds that many in markets believe could prove to be a turning point in the three-year-old debt crisis.
(AGENCIES)
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