Italy has plunged into recession, but investors are still falling over themselves to get involved

  • Italy has led the way for sovereign bond issuance in 2019 with two syndicated deals which attracted massive investor attention.
  • Despite being close to a recession and having its growth forecasts cut Italy drew huge interest as the market rallies.
  • Other countries are now issuing sovereign debt despite previous expectations that the end of the European Central Bank's bond buying programme might dampen interest in some sovereign issuance.

Italy sold two huge sovereign bonds at the start of 2019, defying expectations and kicking off a spate of fellow issuances to continue a rally in the fixed income market.

Investors were expected to be cautious of the end of the European Central Bank's bond buying programme, which concluded at the end of December, but Italy received record demand for its latest issue Wednesday with €41 billion of orders for the €8 billion of 30-year debt on offer.

"The Italy dynamic is interesting because investors had found themselves underweight after last year's sell-off and are now getting back in as the markets rally," said Marco Baldini, head of European and Japan bond syndicate at Barclays.

It's a boost to European countries which are looking to issue new debt with Italy taking advantage of a window of opportunity in light of the recent U-turn by the Federal Reserve on interest rates.

Despite Italy's 2019 growth forecast being slashed to 0.2% — down from 1.2% — Thursday investors remain positive about the country's position even given it entered a technical recession in the final quarter of 2018. Italy also clashed with Brussels last year with a dispute over its government budget which took months to solve.

"This was helped by Italy reaching agreement with the EU on its budget and they're taking advantage of this positive momentum to issue," Baldini added.

"Even with revised growth forecasts pointing to a potential recession, it has not affected the demand this year for both of their blow-out 15 and 30 year deals."

Italy's first 2019 issuance — a 15-year €10 billion deal — was its largest ever sale and it encouraged similar issues from Spain and Greece aiding yield hungry investors.

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