Demand for Italy's bonds 'strong'

Italy's debt offers investors an "ideal" combination of low risk and high yield, the head of its debt agency said today, adding that demand for Italian bonds was strong despite political uncertainty there.

A senior Spanish Treasury official meanwhile said there was little sign that Italy's problems were spreading its way.

Maria Cannata, Italy's head of public debt management, told a Euromoney bond conference in London that one result of the investor demand being seen was that her country planned to launch a 30-year bond and a 10-year inflation-linked offering.

Italian bonds have been hit by major uncertainty after elections delivered a hung parliament, raising the risk of a return to the polls and prolonged paralysis of the country's efforts to bring its €2 trillion public debt under control.

But Ms Cannata said investors were keen on Italian longer-term paper.

"There is a big appetite ... in the long-dated maturity after two years when the market was almost frozen ... Italy (has the) ideal combination of low risk and a good game in terms of its return," she told a Euromoney bond conference in London.

Ten-year Italian borrowing costs rose to their highest in four months at a debt auction last week although the European Central Bank's longstanding but untested pledge to buy bonds has staunched a sharp sell-off in the secondary market.

Italy's 10-year bond was yielding 4.64 per cent today, down around 10 basis points on the day, compared with a yield of 1.47 per cent on German equivalents.

Germany sold €3.1 billion of five-year government debt today in a sale which analysts said went well because investors' concern over Italy's electoral crisis boosted demand for low-risk assets.

Nonetheless, Ms Cannata said Italy planned to tap the investor demand for its longer term paper, while Spain shrugged off worries related to its southern European peer.

"We intend to restart with the lengthening of the duration in the average life of our debt," Ms Cannata said. "We are ready to launch also a new 30-year (bond) as soon as possible."

Speaking at the same conference, Spain's deputy head of Treasury, Ignacio Fernandez-Palomero Morales, said there was little sign that Italy's problems were having an impact on Spanish debt.

"Markets have been relatively stable in an uncertain scenario. We haven't really been affected (by uncertainty in Italy). I think contagion ... has broken to some extent. It is seen more as a domestic problem in Italy rather than a systemic problem," he said.

Reuters