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Opinion

Italy bond: Methuselah madness

A bet on QE expansion overrode worries about the referendum for Italy’s 50-year debut.

Issuing a debut ultra-long sovereign bond just weeks before a highly divisive constitutional referendum that could bring down the government would once have been considered a risky thing to do. 

Not today. Italy issued its first ever 50-year bond in October, despite the fact that a populist vote in the December 4 constitutional referendum could topple prime minister Matteo Renzi’s government, in a situation eerily similar to the UK’s Brexit vote in June.

Not only did Italy issue, it attracted an €18.5 billion order book that resulted in a €5 billion deal – far in excess of the €2 billion to €3 billion that the market thought was possible and larger than similar deals for Spain and France earlier this year.

The deal was sold at a yield of 2.85% for 50 years – the same as Italy paid to issue 30-year debt earlier this year and less than it would have had to pay for three-month money five years ago. France’s 50-year OATs were yielding 1.923% at the beginning of October and Spain’s 3.493%.

It is hard to be surprised by anything in Europe’s dysfunctional capital markets anymore, and Italy is simply jumping on a Methuselah bond bandwagon that has been rolling all year.

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