* Southern European bonds remain under pressure
* 10-year Bunds fall to one-and-a-half week low
* Bond sales in focus; German, Dutch auctions, Greek syndication (Updates prices, adds comments, Euribor fixing, primary market results)
By Yoruk Bahceli
LONDON, April 15 (Reuters) – Italian bonds remained under pressure on Wednesday due to disappointment with the Eurogroup’s coronavirus package and the announcement of changes to the country’s funding programme that increased the prospect of Rome adding to its debt pile.
Euro zone finance ministers agreed a half-a-trillion euro plan to support coronavirus-hit economies last week. However, to the disappointment of several states led by Italy, the deal did not mention using joint debt to finance the economic recovery.
Without joint debt issuance, coronavirus stimulus would only add to the already chunky debt pile of Southern European states, which has raised concern about debt sustainability, particularly in Italy.
“It’s the same factor like yesterday, because we had no agreement by the European leaders on the coronabonds. That is why BTPs are suffering,” DZ Bank rates strategist Sebastian Fellechner said.
Italy will hold larger debt auctions and may resort to more costly syndicated placements for shorter-dated bonds as it ramps up spending to fight the coronavirus crisis, its Treasury said on Tuesday.
While the expectation of additional issuance from Italy had already been priced into markets, the announcement nonetheless added to pressure on Italy’s debt, DZ Bank’s Fellechner said.
Italy’s 2-year bond yield was last up 11 basis points at 0.95% after rising nearly 20 bps on Tuesday, while 10-year yields were up 4 basis points at 1.83%
The closely watched gap with Germany’s 10-year bond yield, effectively the risk premium Italy pays investors, continued to rise, to 225 bps, retracing a significant amount of the tightening since the ECB announced emergency bond purchases in mid-March.
Other Southern European sovereigns are also under pressure since the Eurogroup announcement. The risk premium on Spain’s 10-year bonds has risen 22 basis points on Tuesday and Wednesday , while Portugal’s has risen 16 bps.
“The outcome of this (Eurogroup) meeting makes it clear that the fiscal burden of combating the virus will be borne at a national level, thereby opening the door to concern over the creditworthiness of the region’s more indebted members,” Rabobank analysts said in a note.
They added that this played into the hands of eurosceptics in the region, a threat to the currency bloc.
But joint debt issuance is still a possible response, Eurogroup President Mario Centeno said in an interview with Italy’s Corriere della Sera daily.
Higher-rated safe-haven yields edged lower as the economic damage from the pandemic kept global markets under pressure . Germany’s 10-year benchmark fell 6 bps to a one-and-a-half week low at -0.44%.
In the primary market, Germany sold 0.82 billion euros in a top-up of its 30-year bund, seeing higher demand than the previous auction on March 18, right before the ECB’s emergency stimulus measures were announced.
Greece is selling a seven-year bond via a syndicate of banks, its first sale since its debt became eligible for ECB purchases.
Elsewhere, interbank borrowing costs continued to fall. The three-month Euribor fixing edged down to -0.250% in a further sign that the benchmark may be starting to respond to ECB measures aimed at easing the funding rush across the bloc.
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