Yesterday, the Italian Treasury sold €5.6 billion in 5-, 7- and 10-year sovereign debt (BTPs) at auction. You might think this sale ill-timed—coming on the heels of Tuesday’s sovereign debt market volatility, which saw rates across Italy’s yield curve jump. We have seen lots of media coverage fearing recently rising yields combined with Italy’s debt load risk the country’s finances, leading them to wonder whether fixed-interest investors would be willing to step into the breach when refinancing was needed. Yet when the dust settled Wednesday, the Italian auctions were oversubscribed. Actually, the 10-year auction had its highest bid-to-cover ratio (1.48 bids per BTP sold) this year, suggesting higher yields attracted demand. Imagine that. The resulting yields (3.00% on the 10-year) are higher than a month ago for sure, but they are a far cry from the 7.56% yield Italy auctioned 10-year debt at in November 2011, near the eurozone sovereign debt crisis’s height. The 5-year debt sold Wednesday partly refinanced a May 2013 issue at a lower rate! (2.32% versus 3.01%). Similarly, a decade ago, Italy was issuing 10-year debt at yields north of 5%. We’d do a comparison for 7-year debt, but Italy didn’t issue that maturity until 2013. Though if you’re curious, the inaugural auction yielded 3.76%—nearly double yesterday’s 2% yield.
Consider the debt fears dominating headlines this week in light of these results: If Italy didn’t default or require a bailout when it was financing itself at higher rates—nearly double in the case of 10-year debt—is there a valid reason to think today’s rates risk imminent default?
Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.
This article reflects the opinions, viewpoints and commentary of Fisher Investments MarketMinder editorial staff, which is subject to change at any time without notice. Market Information is provided for illustrative and informational purposes only. Nothing in this article constitutes investment advice or any recommendation to buy or sell any particular security or that a particular transaction or investment strategy is suitable for any specific person.
Fisher Investments Europe Limited, trading as Fisher Investments UK, is authorised and regulated by the UK Financial Conduct Authority (FCA Number 191609) and is registered in England (Company Number 3850593). Fisher Investments Europe Limited has its registered office at: Level 18, One Canada Square, Canary Wharf, London, E14 5AX, United Kingdom. Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission.
