Italy offers bond sale ahead of market risks from Draghi to ECB

Bloomberg

Italy is trying to lock in historically low financing costs at the start of a year where inflationary and political pressures could spell an end to super easy borrowing conditions.
Rome offered a new 30-year bond via banks, kicking off Europe’s first sovereign syndicated deal of 2022. Initial price guidance was at eight basis points above comparable bonds, according to people familiar with the matter, in a sale that Commerzbank AG sees raising $9 billion.
The country’s borrowing costs have already climbed around 30 basis points in the past two weeks on concerns that the European Central Bank may cut pandemic era stimulus and Prime Minister Mario Draghi could step aside.
That pushed up the premium investors demand to hold them over Germany — a key bond market gauge of risk — to the highest since 2020. Other governments may look to follow Italy by frontloading bond sales, given major central banks from the Federal Reserve to the Reserve Bank of New Zealand are seen hiking interest rates this year.
In Europe, ECB officials have struck a hawkish tone on inflation risks after confirming last month that they would wind down a pandemic bond-buying program. Italian bonds have been one of the biggest winners from the central bank’s support, and also benefited from the stabilising force of Draghi’s leadership last year.
Draghi, whose political support in Italy’s coalition government is waning, has hinted he might agree to become the country’s president if parliament votes to select him in a process due to start on Jan. 24. If he switches role, that would cut short the government’s term and could spark an early general election.
The election of Draghi to president would trigger “a new period of political instability for Italy,” said Christopher Dembik, head of macro analysis at Saxo Bank. “The Italian presidential election is not on investors’ radar yet, but expect a hard awakening and market turmoil and bond volatility in the BTP market in case of snap elections.”
Italy mandated Barclays Plc, BNP Paribas, Deutsche Bank AG, Intesa Sanpaolo SpA and JPMorgan Chase & Co. for the sale. Slovenia also mandated banks to offer four-year and 40-year bonds, as sales pick up in Europe’s primary market following an end-year hiatus.