50-year euro bonds seen as unlikely after Greek, Italian issues

LONDON – Signs Italy and Greece may sell 50-year bonds excited talk of growing supply of super-long-dated paper last week, but experts reckon few other eurozone states look set to follow France, which has already issued such bonds. Although there were factors making the 50-year area of the yield curve tempting for borrowers, there was no consensus among analysts on who might have the muscle to launch ultra-long bonds after Italy and Greece. With a slight inversion of the 30- to 50-year yield curve pushing 50-year yields below those of 30-year debt, a chance existed for issuers to lock long-term investors into debt paying a relatively lower coupon related to market conditions. But beyond the latest bout of Mediterranean interest in stretching the maturity horizon, analysts said there was not enough need for new borrowing to justify many other sovereigns jumping on the bandwagon. «The attraction of the 50-year bond as an asset opportunity has to be seen against the needs of issuers’ requirements to match various existing benchmarks and their lack of need for more funding,» said Kornelius Purps, fixed income strategist at UniCredit MIB in Munich. Greece, one of the eurozone’s smallest sovereigns, reignited the debate over whether to extend debt portfolios to 50 years, a move pioneered by France in February 2005. Deputy Finance Minister Petros Doukas said yesterday low interest rates were spurring the issuer to consider a 50-year issuance in the first half of 2007. Speculation cooled late last year when Germany, the eurozone’s biggest economy, signaled it was not planning an issue. But another of the eurozone’s heavyweight issuers, Italy, stole the limelight on Friday when Maria Cannata, director-general of the Treasury’s Public Debt Directorate, said the sovereign was considering its debut in 50-year debt this year and could start with a private placement. The longest-dated Greek and Italian paper is now 30-year debt. Greece, with one of the currency bloc’s largest debts relative to gross domestic product, could begin with an issue of -1 billion. Cannata reported saying last May that Italy had no plans to follow France’s lead. But as the yield curve between 30- and 50-year debt remained tight and even inverted, and with Germany apparently out of the running, the prospects for longer-dated paper now looked more promising. Greece and Italy were watching low yields, analysts said. «It’s clear that with the 50-year French bond yield lower than that of the 30-year, it represents a low borrowing cost to the issuer, while locking in investors for a longer period than the usual 30 years,» said Marc Ostwald, a bond strategist at Insinger de Beaufort in London. But, despite the attraction of an inverted 30-50-year yield curve to the tune of about 2 basis points on Tuesday, there were few obvious contenders for the paper – largely because Treasury revenues are relatively flush now. «Germany said a flat ‘no’ last year and neither Austria nor Ireland has a funding problem to require 50-year paper. Finland has sound finances and doesn’t even have a 30-year bond in existence yet,» said Ostwald. «The Dutch said no, and for reasons similar to Ireland. They don’t want to fracture further their debt portfolios. There is no way that simply issuing more 50-year debt would create a more liquid market. It’s niche paper which pension funds will lock away upon receipt,» he added. Belgium was not a contender either, according to a top-ranking official at the sovereign’s debt office. «But low yields and trigger figures don’t necessarily mean it’s a perfect time to issue from an investor’s point of view,» said Anne Leclercq, deputy director, Treasury & Capital Markets, at the Belgian Debt Agency in Brussels. «We do not have large funding needs, and look for about -23 billion this year,» said Leclercq. «(Fifty-year supply) does not totally fit in with our issuing strategy but we look to see how other states conduct these sales,» she added. «Maybe Spain might do it,» said Ostwald. «But again, the budget is healthy now and if it deteriorates in the next three to five years, be sure it could be that by then the yield curve will have steepened a lot,» he added. Portugal could be a contender, said Michael Trounce, a bond strategist at Nomura International in London. «You can’t rule out Portugal if you are seeing peripheral issuers coming to the fore. Italy, Greece and Portugal are real candidates (for 50-year debt),» he added. UniCredit MIB’s Purps doubted Portugal would issue 50-year paper, adding Portugal would be tied up with shorter-dated issues and a small funding need of up to -15 billion.

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