Italy has joined a handful of countries in selling 50-year bonds, as yield-hungry investors looked past political uncertainty and a troubled banking system to lend the government €5bn.
The Italian government’s first sale of ultra-long bonds attracted orders of €18.5bn, surpassing that of recent issues by Belgium, France and Spain, allowing the heavily indebted nation to sell the bonds with a yield of just 2.8 per cent. That is the same yield it paid to issue 30-year debt earlier this year.
The global market for securities with multi-decade maturities, known as “Methuselah” bonds”, has swelled this year as monetary easing from Europe and Japan drive yields to historic lows, forcing investors to funnel money into riskier, lower-rated or longer-dated bonds in search of positive yields. The universe of government debt with negative yields is now close to $12tn.
“Bond sales that might have sounded impossible a few years ago are now happening regularly,” said Andrew Milligan, head of global strategy at Standard Life Investments, which participated in the sale. “With so many bonds yielding less than zero — and even short-term Italian bonds trading at negative yields — investors are hard pressed to find the sort of yield this new 50-year bond offers. That’s why it has been so popular.”
Governments have taken advantage of falling bond yields by extending the average length of their public debt and locking in low borrowing rates. France, Belgium and Spain have all issued half-century bonds, while South Korea and Japan are rumoured to be considering debut sales in the near future. Earlier in 2016, Ireland and Belgium were able to privately place securities with 100-year maturities.
However, the scale of interest in Italy’s 50-year bond came as a surprise to some investors — who pointed to the potential drag of ailing banks and the upcoming referendum on constitutional reform could have on Italian asset prices.
“We did not participate,” said Shilen Shah, bond strategist at Investec Wealth & Investment. “I think a lot of the interest has come from investors who have to match specific liabilities and have to accept the risks.”
Italian government bond yields rose at the start of the week after the Ministry of Finance announced that it had appointed Banca IMI, Goldman Sachs, HSBC, JPMorgan and UniCredit to manage the sale of new long-term debt — a move that took markets by surprise.
Although yields have fallen across eurozone bond markets in response to European Central Bank stimulus, Italy’s bond market has underperformed its southern-European peers.
Investor concern that the December referendum could undermine Prime Minister Matteo Renzi’s attempts at economic reform has weighed on appetite for the country’s assets this year, pushing the spread between Italian and Spanish bonds to a two-year high.