(Bloomberg) -- Investors are seeking record amounts of bonds from Southern (NYSE:SO) Europe, emerging from the sidelines after last year’s political turmoil in Italy.
Sovereign bond offerings from Italy, Spain and Portugal this month have all drawn unprecedented bidding for a total of 106 billion euros ($120 billion), up 14 percent from a year ago. Asian investors are joining the rush, snapping up more than one billion euros of debt, helping to drive peripheral euro-area yields lower in the past two weeks.
The strong demand marks another step in the recovery for a region that saw sentiment weighed down by the risks of a deficit blow-out from Italy’s populist government. While rating companies downgraded Italy last year, Portugal was raised from junk status and Spain was upgraded. Now the nations are starting to benefit as investors are drawn to their relatively high yields.
“Volatility in Italy left tons of pent-up demand,” said Jaime Costero, a rates strategist at Banco Bilbao Vizcaya Argentaria SA in Madrid. There is also greater structural demand as the rating upgrades have drawn “new investors and wider credit lines,” he said.
Spain received 46.5 billion euros of orders for a 10-year bond on Tuesday, following successful sales by Italy and Portugal earlier this month. A breakdown of demand for Spain’s syndication showed Asian investors at 11.8 percent of the 10 billion euros sold, up from 0.7 percent for a similar offering in January 2018.
Spanish yields have fallen 15 basis points in the past two weeks, while Italian yields are down 11 basis points. Greece could also offer a medium-term bond soon, according to Danske Bank A/S.
Market sentiment improved after Italy resolved a dispute with the European Union over its 2019 budget deficit, while weaker regional economic data has spurred fears of a slowdown that may lead the European Central Bank to be more cautious about removing stimulus.
“There has been a widespread belief among investors that rates will likely remain low for longer, with central banks likely to be very cautious in pushing rates higher,” said Jorge Garayo, a strategist at Societe Generale (PA:SOGN) SA. “Low volatility combined with a low level of rates has led investors to overweight periphery, more so with more market-friendly political posturing.”
(Updates with Asian investor participation.)