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Italy, Spain capitalize on receptive bond market

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Italy and Spain have launched landmark new debt-raising initiatives on Wednesday, capitalizing on the market demand demonstrated by the European Stability Mechanism's bumper debut bond issue on Tuesday.

Italy is set to issue its first ever new seven-year bond while Spain will launch its first 30-year benchmark in over four years, and if successful, the deals will be a huge vote of confidence for peripheral Europe.

"Given the tone of the market, these deals should go well," said one head of origination at a London-based bank.

Just last week, Italy's fragile coalition government looked to be on the brink of collapse and its borrowing costs spiked ahead of a confidence vote in parliament.

This week, and following a successful vote, the permanent euro zone rescue fund, the ESM, came to market to launch its debut bond deal, building a firewall against any future sovereign bailouts.

Over 21 billion euros of demand was received, with only one in three orders filled in the 7 billion euros five-year inaugural issue.

Now Italy plans to issue new debt on three consecutive days, starting with today's seven-year issue. On Thursday, Italy will offer 8.5 billion of one-year treasury bills, and up to up to 6 billion euros of BTPs at mid-month auction on Friday.

With today's issue expected to raise around 6 billion, in line with previous syndications, that could take the weekly issuance volume to over 20 billion euros.

If any deal however, demonstrates just how far sentiment has changed in the last year it is Spain's new 31-year bond.

Spain's borrowing costs hit record highs in July 2012, when its 10-year yields reached 7.3% while its 30-year benchmark was a tad wider at 7.4%. Today it will price its first 30-year benchmark bond since September 2009.

The deal - which will mark the longest point on its curve - is set to be issued at a yield of not much more than 5.1%.

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