articles | 19 February 2019

Cyprus and France launch debt sale in market supercharged by ECB expectations

France and Cyprus launched syndicated bond sales recently as euro zone government bond yields were hovering near lows on expectations the European Central Bank will look to boost a faltering economy with cheap loans.

Both countries launched syndications — a deal structure where banks are appointed to sell debt directly to investors — and France had already garnered €11 billion of interest in the early stages of marketing its new 30-year bond. Cyprus, meanwhile, launched a 15-year bond sale, with pricing expected later on Tuesday, International Financing Review reported. Demand for eurozone government bonds appears insatiable, with borrowing costs near the lowest levels in months and with long-dated bond sales from Belgium and Italy garnering record levels of demand earlier this year. “There is a lot of demand across the board we saw Italy’s 30-year get €41 billion of orders, and the French spread is quite wide after the ‘yellow vest’ protests,” DZ Bank strategist Daniel Lenz said, referring to the protests in France against President Emmanuel Macron’s policies. “So, I expect this deal to also get a lot of interest especially as the hunt for yield has started again,” Lenz added. Most euro zone bond yields were unchanged near recent lows on Tuesday, with France’s outstanding 30-year bond yield dropping lower a basis point at 1.55%. The country’s benchmark 10-year debt yields were at 0.55%, not far from a 26-month low of 0.519% hit last week. Other eurozone government bond yields were unchanged on the day but hovering near recent lows. Germany’s 10-year government bond yield was flat at 0.11%, having hit 0.077% on Feb 8, its lowest level since October 2016. Eurozone borrowing costs are being compressed by expectations that the ECB will launch cheap loans to banks known as the long-term refinancing operations (LTROs), fuelled by comments from rate-setter Benoit Coeure. In the past, such loans have benefited Italian debt in particular as Italian lenders used the scheme to buy up BTPs. Italy’s 10-year bond yields hit a new two-week low of 2.739%, down over 2 bps on the day. The stimulus is being anticipated at a time when eurozone growth has been downbeat, with Germany’s central bank saying this week the region’s biggest economy will continue to struggle in the first half of the year. Germany’s ZEW Institute is to release a survey of economic sentiment at 1000 GMT which could provide further indications on this front. Source: Cyprus Mail

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