Monday 23 October 2017

Italy and Spain grasp chance to issue longer-term bonds


Marius Zaharia

Spain and Italy are grabbing a historic opportunity to lengthen the average life of their debt and pull themselves out of a dangerous spiral of short-term refinancing obligations.

Both countries have said they plan to issue longer-term debt, taking advantage of a revival in appetite for such high-yielding bonds to free themselves from the treadmill of keeping up with frequent repayment deadlines.

Even now, more than 40pc of Spanish debt expires in the next three years and a similar chunk of Italian debt comes due in the next four years, Reuters calculations show.

But if they can tap into renewed investor interest and keep selling long-dated bonds, they can improve their financing position, which had investors so leery in 2011 and 2012 that many outside the euro zone predicted the bloc's imminent fracture.

Signs of economic recovery this year and central bank safety nets introduced to tame the crisis, which erupted in Greece in 2010 and spread to the region's other highly indebted nations, have helped bring down both Italian and Spanish 10-year borrowing costs by about half a percentage point so far this year.

Falling overall financing costs argue for longer maturities to be issued. The total average interest rate Spain paid on its debt was 3.73pc at the end of 2013, down from 4.07pc in 2011, according to Treasury data.

Spain can now sell nine-year bonds at its average rate of funding, whereas late in 2011 it could not even sell three-year bonds at the then average rate.

Irish Independent

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