The recent slump in long-term bond yields in safe-haven bonds from countries such as Germany is having a profound impact on Spain and Italy. The two European Union countries are close to offering a fresh round of long-term debt to sate the appetite investors have for higher yield government bonds.
The current situation is pushing investors into buying debt from non-safe-haven countries, and industry insiders are saying that the Spanish debt may be too good of an opportunity to miss right now. Fund managers are now looking to countries that have not been hit by the bond yield slump which has affected now only Germany, but other countries as well.
The reason for Spain, in particular, is due to being able to buy debt that is Euro denominated but still yielding positive numbers, unlike many of the countries in the Eurozone that have gone down to zero or even into negative numbers.
Spain’s Tuesday offering to be 9 million euros large
Mizuho International Plc, an investment services firm specializing in sovereign debt and mergers and acquisitions, says that the size of the offering is likely to be around 9 billion Euros. Looking at the traditional dates that Spain has issued debt, everyone is expecting them to issue it within a few days.
The last time Spain authorized debt, it issued almost 10 billion euros, after it had received a flurry of orders that totaled almost five times that amount. Spanish bonds yield the holder 0.58% which compares very favorably to France’s bond yields that offer only 0.12%. However, Italy still rules the roost with regards to European Union bond yields where it sits at 2.39%.
Italy, the most indebted nation in the European Union currently, is also looking to offer long term debt that will expire in 2040. The Italian government has taken on the services of Morgan Stanley, NatWest Markets, and Societe Generale SA among others to handle the sale of the bonds.
Italy’s bond issuance will be third this year
Italy specifically is taking advantage of the situation in the market, maybe more so than Spain. This will be the third time this year that the country will issue bonds with an offering in February amounting to 8 billion euro. There was also an offering in January of 10 billion euro worth of government debt.
The reason no one is saying that Italy’s offering is “not to be missed” is simply due to the nature of the country issuing the debt. Spain has more or less cleaned up its act whereas Italy is still severely indebted and does not show any signs of improvement. However, it is still debt that is denominated in euros and there will be plenty of people with enough appetite for the debt to come into the fold when it comes to buying it.
It seems that the current situation in Europe is looking extremely good for countries that have slightly weaker economies but still have government debt that is redeemable in the euro.